Monday, January 26, 2004

Antitrust: Open-Wheel Warfare

The ongoing civil war in open-wheel motorsports took an interesting turn last Thursday when the Indy Racing League offered to buy the assets of their bankrupt rival, Championship Auto Racing Teams. The IRL split from CART in 1996 over philosophical differences, with the newer circuit running exclusively on oval tracks mostly in the U.S., while CART maintained an international series on various forms of racetracks.

IRL’s growth has been steady but hardly NASCAR-like. CART has declined in popularity and had already lost $78 million in the first nine months of 2003, which led to the bankruptcy filing. Unlike the IRL and NASCAR, which are privately owned, CART is a publicly trade corporation. This has traditionally been a bad model for professional sports, which is why you don’t see many leagues incorporate. And even though CART is the older of the two open-wheel series, IRL is owned by the family that owns the Indianapolis Motor Speedway, which not coincidentally runs the Indy 500. That race has lost some of its luster since the CART split, but it’s still the most profitable and publicized open-wheel race of the year.

The IRL is the second bidder for CART’s assets. The first bidder, Open Wheel Racing Series LLC, plans to run a full race series in 2004. The IRL’s plans for CART remain sketchy, though it’s unlikely they would run a competing series. I won’t comment on which bid is stronger, but I can already see a potential antitrust complication: If the bankruptcy judge goes with the IRL bid, then Open Wheel group could turn around and file an antitrust suit, claiming the IRL is attempting to eliminate competition in the “open wheel motorsports” market. The fact that neither circuit can hold a candle to NASCAR or other sports leagues won’t matter to an antitrust case. Nor will CART’s financial insolvency be considered relevant, since failure isn’t an antitrust defense.

It also wouldn’t matter that a CART-IRL merger would be the best thing for the industry right now. Even under private ownership, CART will never be profitable because it lacks substantial base support in the United States and it doesn’t have the Indy 500. ESPN’s Robin Miller explains how the two series could be reunited:
The assets purchased by OWRS include seven profitable events at Long Beach, Calif., Toronto, Montreal, Vancouver, Mexico City, Monterrey, Mexico and Surfer's Paradise, Australia, that draw big crowds. Cleveland made a bit of a comeback this season and Elkhart Lake remains the truest test of road racing in North America. St. Petersburg showed great potential in its debut.
They're all worth saving, plus Milwaukee, which the IRL is already going to for the first time in 2004.

Putting those 10 with the IRL's best tracks (Texas, Kentucky, Kansas City, Chicago, Phoenix, Fontana, Motegi and Indy) might be the kind of mix that would reinvigorate fans, manufacturers, drivers and sponsors.

"Let's go by the theory that open wheel racing will be unified again," said [Paul] Gentilozzi, who does most of the talking for OWRS. "We need a 20-race season with 10 great road courses or street circuits and 10 great ovals.
IRL remains committed to a principally oval series, and this philosophical divide is the greatest roadblock to unifying open-wheel racing. But this is a situation that calls for compromise in the name of pursuing business success and greater profits. Whatever the bankruptcy judge decides, let’s hope CART’s downfall doesn’t become another excuse to enrich antitrust lawyers.

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