CART: Alive or Dead?

Anne Proffit
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0102 Racinglines 1



INDIANAPOLIS, January 2, 2004—

With the new year just two days old, a large question remains as to the life signs of Championship Auto Racing Teams, a Delaware corporation and its Michigan-based operation, CART, Inc.

Over the past few weeks, the owners of Open Wheel Racing Series (OWRS) have moved to amend the terms of their purchase agreement, thereby throwing Championship (as the Delaware company is known) into Chapter 11 bankruptcy. Where OWRS wanted, at one time, to buy the entire shebang their focus changed early in December to acquiring only certain assets of CART, Inc.

CART and Championship have been on the market a long time now, since Bear Stearns was brought in to help find a buyer. Ranging back to September of 2002, the "for sale" sign has been up and, as CART lawyers pointed out to the bankruptcy court, only the principals of OWRS have shown interest in acquiring the once-proud sanctioning body.

Of course Gerald Forsythe, Paul Gentilozzi and Kevin Kalkhoven have reasons for wanting to keep CART going. They've stressed all along that they would hate to see the series go away and that they believe this business can be saved.

But how do you save a group that has squandered good will and ruined its partnerships over the years by being inept and forgetting the old axiom: your old friends are your best friends? As CART has allowed one-time friends to depart, it now finds itself with few sponsors, teams and suppliers willing to chance a 2004 season.

That point was well-made by Elkhart Lake's Road America who, after hearing that OWRS intended to enforce the 2003 contract signed by the track with CART, insisted the pact was not assignable. California Speedway, who postponed their race scheduled for the first weekend of November when the circuit was imperiled by wildfires in the nearby hills had the race cancelled by CART, who found no alternative date acceptable.

This is not the first time circuits have argued with CART over terms of their agreements.

There's a long line of track owners and promoters who have had less than acceptable dealings with the public company that CART became back in 1998 at the instigation of then-CEO Andrew Craig. He made money on that move, as did some team owners and other investors, but taking the company public turned out to be its downfall. That, and forgetting that relationships need to be nurtured, not discarded like a chewing gum wrapper.

December 30 in Federal Bankruptcy Court here, CART tried to impress upon the judge the need for expeditious settling of its December 16th Chapter 11 filing. In asking for emergency motions to establish procedures for sale of its assets, CART brought up the fact that, aside from OWRS, no one has stepped forward to purchase any part of its business, despite sales calls from Bear Stearns and others within the company.

CART's attorneys want swift settlement so that a 2004 season can commence with the 30th running of the Toyota Grand Prix of Long Beach in April. Rapid settlement they said is critical to making the 2004 season happen. The drop-dead date, OWRS attorneys argued, is February 13th.

On the other side of the table, lawyers for Road America and California Speedway contended that CART's filing in Bankruptcy Court is actually a larger part of an "insider sale", as all the principals are team owners and racers. It's in their best interest to have a 2004 season—and beyond—and they don't give a hoot what happens to these two promoters (or any others, for that matter).

Like gorillas lobbing coconuts over tall buildings, the attorneys—I counted 10 on the active side of the room—made their cases for and against quick disposal of CART's assets. California Speedway is hoping to retrieve the $2.5 million it paid as a sanction agreement; Road America simply wants to know now whether to shelve the Champ Car race as headliner for their August race meeting.

It costs a lot of money to put on race weekends beyond sanctioning fees paid to organizers. Getting sufficient fan interest to have a reasonable and profitable gate isn't easy, although some promoters manage to make it look that way. Cases in point (for CART) include Long Beach, the three Canadian races at Toronto, Vancouver and Montreal, the two Mexican events (Monterrey and Mexico City) and Surfers Paradise, Australia.

In each case, the promoters have big corporate investment and a core fan base. At all of the circuits I've just named, there's more than racing going on; it's a carnival weekend. Once you've been to these venues, you bring your group, who add to the numbers with friends of their own. It's an outreach and it works. The legwork to get people in the gate begins, as Road America's lawyers pointed out, the day after the last race occurred.

Diminishing returns for circuit owners and promoters has led to their demands to pay less in sanction fees over the past few years and in the future. In many cases, in order to put on a show, CART has been forced to promote its own events, Cleveland being among the few to turn out successfully, at least artistically. CART took a financial bath on all of its self-promoted races in 2003, another reason why it's drowning in red ink.

ISC, through its attorney for California Speedway believes there are entities [it won't name] that could come forward to purchase CART assets prior to the next court date. The real value of CART is in its contracts, because that's what makes a racing series, they insist.

The hard assets of various trucks (including the medical facility), 100 Cosworth XFE 2.65-liter engines CART purchased to make the 2003 season happen, various Reynard race cars—including the one used by Alex Zanardi to complete his memorable 13 laps at Eurospeedway Lausitz—are minimal in their value, CART insists.

While the judge in this case believes the objections to a rapid conclusion of CART's sale are well taken, the whole morass moves forward on January 28th in Indianapolis.

For the remaining teams who intend (at this time) to pursue their options within the Champ Car fold, the time to get financial partners and to plan for the coming year has pretty much come and gone. Many are still waiting for purse payouts from 2003 and wondering just where they can go with the infrastructure they've got should the bankruptcy proceeding and its conclusion go against OWRS.

While Gentilozzi, Kalkhoven and Forsythe continue to prepare for Champ Car races in 2004, they still haven't addressed the lingering effects of 2003 on the future of their constituency. At least in public, OWRS forges ahead with plans that will be announced "in a few days," Gentilozzi said during his last press conference on December 18th.

More than a few days have come and gone and all that we can hear at this point is the rumbling of paper from barristers who must represent special interests of their clients.

As 2004 dawns, there are still two US-based open wheel series—Champ Car and the Indy Racing League—playing before an ever-diminishing crowd count. With attorneys playing a larger part than racers, who even cares?

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