Thursday, December 29, 2011

Robbing Peter to Pay Chip

About 15 years ago strategic business consultants began to champion an item called the “Balanced Scorecard”.  The idea was that too many businesses were so focused on short term accounting profits, that long term customer and quality metrics were being forgotten.  The implication, it was feared, would be that businesses focusing only on short term profits might penny pinch or shortcut their way out of long term existence.  
Strategic consultancies began to build econometric models that showed short term profit seeking led to long term shrinkage.  Long term, sustainable growth was powered by the short to mid term management of customer and quality metrics.  Thus was born the Balanced Scorecard.  A report card for senior managers that combined profit, costing, productivity, efficiency, quality and customer metrics into a single dashboard.  Being a Marketing Researcher by trade, companies I have worked for through the years have been charged with providing customer metrics for such dashboards in the form of customer sat metrics or brand health measures. 
In addition to simply being a sheet of summary numbers, the scorecards were built upon simulators based on econometric models that helped senior managers allocate monetary expenditures across their business.  Would money saved on quality of inputs have an effect on customer satisfaction which would ultimately lead to lower profits in the long term or would customers be ok with lower quality so along as part of the savings be passed along as a price cut?  Ultimately the scorecards and models were to help guide businesses in allocating scarce resources for their ultimate financial good.
As I have posted items on this blog over the past three years, I have begun to accumulate a set of numbers that seem to me to be worthy of some sort of scorecard status: for example TV ratings goals of 1/2/6 for the Vs/ABC/500 broadcasts by 2012 or ~40% American drivers.  50% Ovals and 50% twisties.  I have no time series data and thus no model to bear these numbers out as reliable goals, but I am a blogger, HEAR ME ROAR! 
Another number I think is of some note is 24.  24 is a goal for two key measures of the series health.  A strong IndyCar series will have 24 events, each featuring at least 24 entries each.  How do we stand?  Well I put this post off a few weeks awaiting final word on the schedule and to see how car counts were shaking out.  Well, we know the story, we’re scraping to find a 16th event but according to Marshal Pruett, there’s enough Irons in the fire that when all shakes out, it is not out of the realm of possibility to have somewhere between 26 and 30 fulltime cars on the grid. 
Ultimately IndyCar is a two tier franchise business model.  It sanctions racing events for teams to participate in.  Promoters and track owners on one hand and racing teams on the other.  Two sets of businesses and profit centers based around the revenue streams that IndyCar produces.  Right now, it would appear that one set of these entities is doing better than the other.  New teams and old teams alike are bullish about the long term potential of participating in Indycar (the loss of NHL is noted, though I do wonder if the roll up of that revered team has more to do with devaluing an asset for estate planning purposes than being a deep statement about the prospects for operating an Indycar team in the near future).  On the other hand the league is searching for business models that work for new events and at almost any sort of oval in general.
Yesterday I posted a flow chart of the transfers of money that happens amongst the players on the IndyCar stage.  Pressdog will be relieved to see that all sources of revenue basically came from the fan base, filtered through sponsors, promoters and TV back to the league and teams.  Indeed, other than operating expenses (which all three profit centers have), only the teams had all the arrows pointing towards them, w/o any pointing away. 

I like race cars, you like race cars, we all like race cars.  Amazing to imagine how happy either ChampCar or the IRL would have felt about the car counts the league saw this year and could see next year.  But we also like RACES and the flip side of this is the pinch on the promoters and track owners.  It simply is a tough nut to crack for many of them to make money and hence, those willing to give IndyCar a try are fewer and the schedule has dwindled. 
But Oddly enough if you look at the flow chart hard enough you notice that there is a big stream of money from the tracks and promoters in the form of sanctioning fees coming in at $1.5m a pop to the league.  On the other hand there is a large sum of $ heading from the league to the teams in the form of TEAM money, roughly $1.2M a team for 22 entries.  TEAM money is IndyCar’s version of revenue sharing designed to flatten the competitive landscape and promote fair competition.  But 11 of the 22 paying slots next year are going to the Ganassi, Penske and Andretti behemoths. The little guys who would most benefit see none of it. 
So if we are in a situation where we seem to have plenty of cars but barely enough events would it not make sense for IndyCar to adjust its allocation of resources?  If car counts for 2012 are indeed as robust as they seem to have the potential to be, might it be good planning for the league to slow the stream of money to the set of franchisees doing relatively well and pass it along as a break to the set of franchisees that appear to be struggling?
A modest proposal for 2013.  Shave $100k from each of the team allocations.  Take that $2.2M and split it four ways to cut sanctioning fees in order to seed events at Phoenix, Watkins Glen, New Hampshire and Road America.  The cut in TEAM allocations will cause some belt tightening at the top of the grid, but is not likely to affect car counts from those teams, as the teams most struggling to survive don’t receive TEAM $ at all.  Then aggregating those funds to support events that are likely to play well on TV and into the future could well get more fans viewing races which in the long term increases sponsorship dollars for all. 
It’s just a thought -  Please don’t hit me Chip.

Please Review, There will Be a Quiz Tomorrow

Please Review the Money Trail Below...Tomorrow's Post/Opinion will be based on a firm understanding of the cash flows diagrammed.


Notes/Assumptions that prevent this flow from getting to darn busy:
  • The Teams, League and Tracks each have sizeable expenses and budgets that are not chronicled here since they all have them.
  • I am ignoring the sale of swag by the League, Drivers and Tracks which for IndyCar is not overly substancial
  • Size of the arrows are not neccessarily to scale overall
  • Size of arrows for teams/tracks may differ across individual players.  IE TCGR probably has a much differently sized and split set of Arrows compared to Conquest. 

Monday, December 5, 2011

NBC Sports and the .Something Channels

As the off/silly season of discontent lingers on it seems that March is soo far away that it will never get here.  To pass the time we are focused on the usual offseason speculation about teams and drivers.  To this we can add additional drama concerning the schedule, as it seems that this year, events have their own extended silly season. Good news about new engine manufacturers is tempered by questions of balance in the new chassis.
Another Important change is coming to IndyCar within the next month. IndyCar’s primary cable partner, Versus, will undergo a major makeover to become the NBC Sports Channel.  Additional focus and brand recognition of the channel itself along with cross pollination/promotion with more prominent and popular sporting events could be a boon for IndyCar.
Something that would be even more beneficial would be if this new channel, NBC Sports, were distributed across the additional bandwidth that the Digital conversion of broadcast TV brought.  If you only watch cable or satellite, you may have missed it.  But if you have an HDTV ready TV or purchased a HD conversion box for your older TV set, you no longer have just five TV channels, ABC, NBC, CBS, PBS and FOX.  You now have “Child” or .something channels.  In Indy for example channel 13 is no longer just channel 13, it is now channel 13.1, 13.2 and 13.3.  Additional bandwidth for local TV franchises to offer additional programming to keep pace with cable distributors.
To date, this additional bandwidth has not been used that effectively.  In Indy, we have 5 of these 10 new channels devoted to either a loop of the local weather broadcast or radar (Which is REALY boring on a sunny summer day).  The best application I have seen utilizing this additional Bandwidth is 6.2 which broadcasts a new local channel “Hometown Sports Network” that broadcasts local High School sports.  At some point I expect that some of these channels will pick up Spanish broadcasting like Telemundo. 
For this post I was scrolling through my .something channels just to see what was there…and much to my surprise on 13.3 amidst the endless streams of Informercials, I saw a promo that this was the Universal Sports channel, branded with the peacock and all.  Universal sports is not new, it has bounced around my satellite services for three or so years featuring as I recall, lots of Olympic trials and cycling.  While very few people know it exists, It is getting rolled into Versus to become the NBC Sports channel. 
Imagine this…what if the NBC Sports channel was content that was delivered through one of the .something digital channels in every local NBC affiliate?  Every household in America could potentially have access to all the programming on this newly relaunched channel…Including IndyCar.  No more cable satellite provider squabbles with no more contractual black outs where providers failed to come to new contract terms.  No more inclusion only on “Premium Tiers”.
Of course the obstacle here would be all the local affiliates would need to be convinced that the content on this new channel had better ad revenue potential than Skytrac Radar relative to the costs of the content.  Likewise the viewers would have to know these channels existed and those accustomed to cable would have to know to attach an antenna to one of the input portals and use the TV/Video button on their remotes to move off the cable or Xbox feed to where these channels were.
I have no Idea if this is in the Launch plans for the NBC Sport channel, but what a boon it would be for IndyCar to have universal distribution for every race it broadcasts…