Pook's last days.............

[Dov]

From Autoweek.com:

(09:01 Oct. 16, 2003)
The last days of Chris Pook: As his time winds down, he is the center of controversy


By J.P. VETTRAINO

With 200,000-plus spectators and CART’s largest grid this season, Mexico City was alive. Trouble was, the excitement couldn’t shroud the preliminary proxy statement filed less than a week before in advance of CART’s proposed sale to Open Wheel Racing Series LLC. The precipitous financial decline described therein seems more painful when it is spelled out in black and white.
The woe in the proxy statement might ultimately be blamed on Christopher R. Pook, the CEO given carte blanche 22 months ago after he was hired by CART’s directors. In Mexico, with his days as CEO quickly winding down, Pook was the target of a growing undercurrent of criticism. A few have called Pook’s term a disaster. What should we make of this revisionist movement?

What the proxy statement says is that CART burned $83 million in cash this season just to keep operating. At year-end, short of the sale, CART will have as little as $1.5 million in reserve. The huge drain is taken as a symbol of Pook’s failure.

In deciding what to make of this, one point should be foremost: While he couched his plan in corporate-friendly terms, Pook made no bones about his intent to draw down the cash to carry CART through tough times. Pook predicted the company would generate a profit in 2005 at the earliest. Yet last season, with the departure of longtime CART patrons Toyota, Honda and Fed-Ex (to name a few), it was a two- and possibly a three-year plan. As it turns out, the series was fortunate to make it through one season with what was once considered an impressive cash reserve.

The proxy statement cites three wounds leaving CART bleeding money. Two of them predate Pook’s tenure; the third was probably unavoidable if CART was to have a 2003 season at all.

Television has been a cash drain. Under previous CEO Joe Heitzler, CART’s TV package took an ugly turn: Where ABC/ESPN once paid CART to broadcast races, CART now buys time on CBS and Speed, and pays for production.

“Race promotion” was Heitzler’s legacy, too. Yet, partly to keep dates in important markets and partly because he’s a race promoter by trade, Pook expanded the number of events where CART promotes the races rather than taking a sanction fee. The cost of staging these races has exceeded revenue produced by $8.5 million.

Finally, there is money spent supporting teams. As the 2002 season wound to a close, a number of teams defected to the IRL. Pook channeled money to team owners, to the tune of $47 million this season. He finished with a full grid that met CART’s contractual guarantees to promoters and sponsors.

Certainly Pook might have stretched the stash further or found a better balance between spreading cash and packing the grid. Yet CART’s independent directors—-men who have been CEOs and senior vice presidents at Textron, SBC and Motorola—-authorized the expenditures. Some who are griping about irresponsible spending are recipients of CART’s largess.

One shortcoming in the proxy noted by independent securities firms is CART’s “difficulty forecasting short-term operating performance.” As often as not, projections on costs or revenue have been off the mark. While this might not be Pook’s work, it’s ultimately his responsibility, and he says he should probably have shot from the hip less frequently. “I should have done more research, armed myself with better analysis,” he says.

Pook will step down if and when CART’s sale is completed. To facilitate the deal, he has given up a $1.4 million golden parachute in exchange for a consulting contract that will pay between $264,000 and $488,000 over the next three years. And while bleeding cash may never be a good thing, Pook did accomplish other things well.

In the middle of last season, he pushed through his Cosworth spec-engine plan, circumventing a knee-jerk decision to adopt IRL engine and chassis rules. In theory, the IRL package was supposed to facilitate participation in both leagues. At best it would have increased CART team costs considerably and guaranteed second-class status (the IRL engine manufacturers were not going to allow the CART variants to carry their names).

He also curtailed the power of the franchise board that had directed or misdirected CART for years. He stabilized costs, rules and the racing. Huge gaffes no longer originated in the front office on a biweekly basis.

“Chris came in when this series needed him and did an outstanding job,” says team owner Bobby Rahal. “I honestly don’t think there would be a CART to change hands if it weren’t for Chris Pook.”

Pook considers his biggest failure to be misjudging the situation he stepped into.

“We underestimated the depth of negative momentum,” he says. “Immediately after I was hired I paid a visit at Toyota [which had already given up on CART], whom I’d done business with for 26 years [as promoter of Long Beach]. Their immediate reaction was, ‘You’re at least a year too late. It can’t be saved.’

“From the business plan to the product, it was clear that this outfit could not work as a public company, except for those who reaped the windfall in the IPO,” he says.

Pook was there to take it private again. Remaining shareholders will get at least a little cash and a big tax write-off. And finally, Pook gave CART and its next owners one more chance to restore the glory.

Maybe no one should have expected more.

[Flatspot]

Thanks for the article Dov. I think it is an excellant analysis of the job Pook has done. IMO Bobby Rahal is 100% accurate.

Over a year ago there were discussions on this board pertaining to "cash burns" and the like. From the extent of those discussions it is abundantly clear, at least to me, that CART's future was sketchy at best. Everything has been above board and in the open for public consumption. Any shareholder who stayed in after CART started to spend the money necessary to keep to series alive, and wasn't willing to accept the risks associated with it, has nobody to blame but themselves for their losses.

Could Pook have done better? Maybe. Has Pook failed? Not in my book.

[Snrub]

I think maybe $10M could have been saved without major changes to CART, $20M with major changes. One must keep in mind how much had to be spent to keep teams & events afloat. CART looks in a very good position for next year and beyond.

[sgjb]

I am not really a Chris Pook fan but I do believe the series wouldn't be around without him. I think the money spent propping up teams was necessary, I feel the poor judgement was in adding the European races and sanctioning their own races.

But I must thank Mr. Pook for keeping it afloat so hopefully we will see a 2004 season.

[racefanatic]

I'm SO glad Joe Heitzler isn't still running things! I think it's pretty obvious that Chris Pook is doing a really good job and he's been great for CART. Good article, thanks!

[Brian W Keske]

Originally posted by Snrub
One must keep in mind how much had to be spent to keep teams & events afloat. CART looks in a very good position for next year and beyond.

I do keep in mind how much CART had to spend to keep both teams and events afloat Snrub. Which makes me wonder about your last sentance.

What has changed to make it positive? The new Owner's are still going to face the same issues. They have not gone away, and they have even said ESP is not going to be availiable next year. So what is this 'magic' that is going to happen to make it a good position? What is Pook talking about when he say's, in effect, everything will be fine?

I know some take me as D&Ger, but I am really interested in how these guy's are going to turn this series around without losing a boat load of cash to maintain it's existing 'level'. And how long, (and how much), are they willing to keep doing this?

My personal feeling is this series has to be restructured to the point of being viable (profitable) again. Even if that means taking a big step back, and stepping completly out of the 'lime light' for a couple/few years. Then finding a way 'back up' slowly, while focused on a new direction/identity. It would take time, but I would be willing to get behind a series making solid positive steps deeply grounded in *racing first*, than any quick schemes where racing almost has to become secondary to making *any* money at *any* cost.

[Brian W Keske]

Just to add...

The series must operate within the sponsors intrest of supplying funding, not beyond it, as it has the past couple years.

[Fogelhund]

I've been a critic of the financials these past years. I can only surmise that Pook knew in advance of this season, that OWRS would do a buyout. With this view, what he did made some sense. Without knowledge of a buyer, it was a suicide mission.

Some of these numbers are still staggering. $47 million in Pookfare? Wow. Hopefully the teams can operate with substantially less pogey going forward.

Good Luck to OWRS, hopefully they can build CART back to near the level it once was.

[zerO]

zerO - Attack the post, not the poster.

[Snrub]

CART is clearly on the way up. New sponsors are getting involved with the series. New talented drivers have come into the series and more are to come. The non-Players/NH teams have all gotten much stronger. TV ratings are going up. There is no infighting. New marking ideas have come about.

Taking big steps back will mean the end of CART. The new owners have a lot of money. $50M is squat to Forsythe, what else is he going to do with all that money? During the recovery period, CART can keep its stature and become profitable in the mean time.

Realistically CART was not run like a typical publicly traded company. They were not that responsible to shareholders. For them they should have preserved the company at all costs, not taking big risks. That said the majority of shares were owned by people who were willing to try this route.

[Brian W Keske]

Who are the new sponsors that have made/or going to make a real difference? Even Newman/Haas recieved ESP this year, and it is doubtful they would have been in CART this year without it. But it is very obvious that it is the amount of overall sposors, and the amount these sponsors are really giving these teams to run in the series is the issue. Long gone are the PPG's, the FedEx's, the Honda's, the Toyota's, the Marlboro's, the Budweiser's, the Kool's, etc. etc.

The 'other' teams have looked stronger because the overall teams in CART are not what they used to be. They should look stronger. I'm not necessarily saying that is bad, but that does not necessarily attract sponsors/money.

TV ratings? No open wheel series can be excited about their numbers...They are still barely existant for the price they have been paying to be on at all. Again, IMO the price sponsors are willing to pay should be reflected by the TV package you are able to pay for. Better yet, you need networks willing to *pay you* for the privalige.

Infighting does not make the money picture better either.

As far as the new marketing idea's....well, that is why I say racing first and foremost.

I still have yet to see any of these things as being able to effect a drastic turn-around.

The books will be a secret, we will never have a clue how the series is doing if/when/after it's sold. But there are way's to make it profitable. I, as a fan, look at what Panoz has done with IMSA/the ALMS. According to Atherton the series is running in the black, and even they are paying for their TV time, and getting about as good, and better ratings than CART. But the point is, even after paying for TV packages, not subsidizing their teams, and running almost all road races, they are making money. I think CART could learn from what Don has been able to do.

[Flatspot]

At this point I think that any sponsor is going to make a real difference. We are seeing people like Sportsbook.com etc. getting their feet wet and from what I know liking what their getting. The other thing is that everyone seems to feel more comfortable that the series is going to be viable for 2004 and most likely into the future. I also think the lack of infighting will make the money picture better. For one thing when a potential sponsor visits the paddock all the teams are positive as opposed to most the teams singing the doom song. That's gotta help if nothing more than psychologically. It will also allow for the maintenance of a spec series for now, and gradual return to a more open rules package which means minimal R&D expenditures needing to be made by the teams, leaving that money to actually race, and that's a lot of money. Additionally, costs in the IRL are spiraling and I may be wrong but it feels like the IRL is at risk of losing teams to CART for next season as opposed to the opposite of one short year ago.

Indeed CART has a long long way to go to be what it once was, but you can't deny that the momentum has shifted a long way to the better.

[Brian W Keske]

Sportsbook.com is helping to sponsor a race which is losing money, and will for the next few years. CART lost more money than they made at it's venues. Speaking of which, the hospitality business at most tracks is almost good as dead. A vital ingrediant to a venue's revenue. And a reflection on how much these companies are really supporting.

Yes, any sponsor is good, but they may not be making an actual difference in the bottom line.

There was infighting going on when CART had it's hands around sponsors making a difference. There is some infighting in NASCAR. It does not make a big difference.

I'm still trying to see what is so different for next year. It's not that I want to see it die (I've been following CART since 'day 1'), it's that I wish they would do things different enough to restructure the whole series for long term potential, and reasonable, growth. And I'm not talking concerts.

[Snrub]

IMO Mexican sponsors have made a big difference. Sportsbook, McDs, US Bank would be some new sponsors showing interest in the series. Another example notice PK has Japino (sp?) now. Sponsors were afraid of CART because there was no gaurentee that it would survive. Now they know it will.

The obvious marketing ideas is the focus on bringing racing to the people and motorrock. Both are going to be required to get people to the races. Simply scalling back and relying on hardcore fans to make the series is not going to cut it. If I went into work and asked people to tell me about ALMS they haven't a clue. Yesterday I was talking about Mosport, no one knew what or where that was! They didn't understand the concept of a roadcourse. They do know what the Molson Indy is.

[Brian W Keske]

But the thing is, the ALMS is making money, so has a solid future to build on without having to 'play games' in order to survive. They simply race, and give the fans who come to the venues a great experiance.

I could care less if my office mates know who CART is, or the ALMS. As long as it's there for the fans that *are interested*, and making money doing it, and I'm/we are enjoying it, that is all that matters. I don't want it to be as popular as NASCAR, and I don't want CART to be as popular as NASCAR.

Who cares as long as it's healthy?

[indycool]

"Sponsors were afraid of CART because there was no guarantee it would survive. Now they know it will."

Snrub, what "guarantee" and how do "they know?"

They apparently don't, with all the team announcements saying "it's our intention" to run a second car and Bridgestone's announcement that "we're going to be here but it's not signed yet."

There are many hurdles to leap over and they must happen soon for CART to have a 2004 season. Neither current CART management nor OWRS can negotiate for next season until the shareholder vote on the buyout. There is also the potential of a Vannini suit.

The stock price is reflecting hesitation. It slipped to a quarter a share earlier this week and drifted between 42 and 55 cents yesterday and today. Those selling at 42 cents don't believe in the buyout. Those buying at 42 cents do.

racefanatic expressed that he/she was glad Heitzler isn't running things. The rumor's around, and has been reported as a rumor in NSSN, that Heitzler will be "the man" if OWRS takes over. What would THAT do credibility-wise?

Yes, these guys have oodles of money. Forsythe has already lost millions. The OWRS buyout proposal shows that they'll put a cap of $15 million into operating expenses for a year. That won't even buy the TV time that's being discussed.

Sportsbook.com? The legality and propriety of an offshore gambling consortium getting involved is already in question.

There are some harsh realities to be faced. I'm afraid I agree with Brian that it's pretty quizzical right now how this is going to take shape...or not. Time will tell.

[Flatspot]

Originally posted by Brian W. Keske
There was infighting going on when CART had it's hands around sponsors making a difference. There is some infighting in NASCAR. It does not make a big difference.

I respectfully disagree. It was primarily the infighting that ultimately led to the creation of the IRL, the single biggest difference in all of North American open wheel racing. It was also infighting that created a lack of direction for engine formula, which ultimately led to the loss of Honda, Toyota et al. These losses subsequently led to the demise of most of the major sponsors as veiwership and attendance in the US dropped like a rock or they looked soley to the Indy 500 for return on their investment as it relates to open wheel. Many just left for NASCAR.

Whether or not the ALMS is making money depends on how you view things. It may have begun to run a season or two in the black but I suspect that if you look at the investment to get it up and running and balanced that against income produced it is still a negative number. Add to that the opportunity costs of an alternative investment and the bottom line will be red for a very long time.

As Gentilozzi has stated, the current CART buyout group are businessmen who happen to race on the weekend. They are looking for return on investment and are taking the steps they feel are needed to bring the income up to a level that beats their alternative investment. We may not beleive that is the proper view, but it is their veiw, and they are the ones keeping our sport alive so I'm happy to go along with their decisions on how to grow the fanbase. It's their money and without them we would be watching test patterns.

I do care wether or not the person in the office next to me know who CART is. That would mean more *are interested* creating greater opprotunity for the owners to make money so the I/we can continue to enjoy it. Otherwise, we won't be able to. Why wouldn't we want CART to be as big as NASCAR, or bigger?

Originally posted by Snrub
IMO Mexican sponsors have made a big difference. Sportsbook, McDs, US Bank would be some new sponsors showing interest in the series. Another example notice PK has Japino (sp?) now. Sponsors were afraid of CART because there was no gaurentee that it would survive. Now they know it will.

Exactly! While there may be no "guarantee" the feeling is there where it wasn't a year ago.

[macdaddy]

Here's from a link that indycool has posted...

http://www.indystar.com/print/articl...-8479-036.html

Nearly 40 percent of the employees from CART's Indianapolis headquarters were laid off Thursday.

The approximately 20 layoffs, effective immediately, were primarily from the sales and marketing staffs and included vice president of communications Adam Saal.

[Flatspot]

Originally posted by indycool
Sportsbook.com? The legality and propriety of an offshore gambling consortium getting involved is already in question.

I wasn't debating the political correctness of Sportsbook but rather citing an example of a sponsor who has thrown money at both a race and a car.

[Brian W Keske]

I've said what I had to say regarding my views, and I'll stand by them.

I also accept all your views here too, I at one time felt much the same way. But today I really feel different about what CART should do to maintain themselves as a viable business that 'happens to go racing'.

I guess my views started changing as I have become more involved in the SCCA, and started remembering where my roots were, and where my enjoyment in this sport starts. The whole 'CART vs. IRL is bigger/better' thing has taken away much
of the true enjoyment from a series I once really enjoyed. And I have found I don't need to follow the most popular sport in the world to be satisfied, heck I can be satisfied going to a SCCA race weekend. And that is when I started questioning the need for CART maintaining their current visability on the motorsport radar. And also the need to maintain that at all cost, even to diminish the whole reason I attend races....racing, having fun, and maintaining an intrest in cars, drivers and teams.

I could ask many folks I know what F1 is (here in the States), and you know what? Most wouldn't really have a clue. And we are talking about someting far from a niche' series...to us.

I just think the whole IRL/CART mess has really gotten many of us far away from the reason we started following racing in the first place. At least it did for me, and my perspective on the whole 'thing' has changed allot recently. And trying to watch another street race, where the racing is typically poor, is not what excited me about this sport 20+ years ago. And I have decided not to care about it if that is the new direction in order to make money, in order to maintain a visability level. I would rather watch 40 Formula V's going at each other during the Run-Off's.

[GP Racer]

Some great posts here guys!

Personally, I think that the only way for these two series to survive is to merge again. I know, I know, most here think that is never going to happen for a multitude of reasons, but it has to. Both of these series are facing some similar problems, that when faced alone, they can't solve no matter what they say.

For one, there simply are not enough fans to go around. TV viewership is terrible(with a few exceptions) and many races simply do not draw many fans to the track.

Two is sponsorship. It's pretty dismal, especially in CART. Example, Team American Spirit, the only team with American drivers, and zero sponsorship. Terrible!

Third, lack of American drivers. There going to stay away from open wheel racing, where the situation is so muddled, and go for the sure pay-day, in NASCAR. How does an American based series, market so many foreign drivers, and make it popular here? We need some heroes again.

Well, there's alot more to it, to be sure. But, I'll say this, the only way to a solid future for open wheel racing in North America, is to become one again. Having two series is killing what we love, and the powers that be in CART and the IRL know it, and when push comes to shove, a deal will be made.