Excerpts from an interview with Andrew Craig, December 16, 1998. Mr. T. E. McHale, CART News Manager was the moderator.
T.E. McHALE: Good afternoon to everybody. Happy holidays to you all and thanks for joining us this afternoon. Our guest today is CART chairman and chief executive officer, Andrew Craig. Andrew, good afternoon. Thanks for being with us. Andrew has a few opening remarks, and then we will begin taking questions. At this point, I will turn it over to Andrew. ANDREW CRAIG: Good afternoon, everybody. First of all, I will just start with a brief apology. A few weeks back, I was meant to be the guest on our teleconference and, unfortunately, due to illness, I had to cancel at very short notice, so my apologies for that cancellation. Let me just also add, my best wishes for the holiday season ahead. I think the best and most productive use of this time is to try to open to questions so that you can have every opportunity to discuss every and any issue you would like to cover. Let me just start, however, with a very brief summary of the year and some of the highlights throughout the year. First of all, obviously, from a racing perspective, we were - with one caveat - we were extremely pleased with our season. We ran 19 races for the first time with seven different winners. We had a highly competitive season. The obvious caveat to all of that is the deaths of three spectators of Michigan. It was a terrible tragedy which obviously will rest with us for many, many years to come. With that one sad exception, I think we had a first class year on the racetrack. A number of highlights throughout the year in addition to the racing, of course, is at the beginning of the year, we would like to welcome FedEx as a title sponsor for the series in the four-year agreement. I think the FedEx have made a good start in their first year. It takes time for any relationship to build and develop. It's a new sport for them, and I think they have made some real steps in the right direction. I see them being a significant force in the promotion of the sport going forward. The second highlight, of course, is that in March, we took the company public with an initial public offering on the New York Stock Exchange, and plus more importantly, the offering itself, which as a consequence, we have acquired the Indy Lights Series and the Toyota Atlantic Series and started the basis for our latter system which we intend to use to help us in growing the sports and growing the athlete base within the sports in the years ahead. That's just one part of our plan to develop the business. We also made two very significant staff appointments during the year. In mid season, actually, more precisely, I believe it was over the Detroit weekend, we employed Jeff Horton as our vice-president of electronics. I think that underscores the ever increasing complexity of the series and, in fact, Jeff was brought on specifically to look at issues relating to traction control or, more precisely, lack thereof, but it gives you some feeling for the level we are at now where we have to have somebody of a vice-president level to supervise this important area of the business. More recent, I was delighted to welcome Tim on board as our senior for racing operations. Tim is going to help us considerably in the administration and organization of the racing side of our business. Looking towards next year very briefly, and then I will turn it over to you, we are going to have 20 races next year. We are delighted to be out in Chicago. It's a downtown venue. We think it will work extremely well for us, certainly from the interests I have seen in Chicago so far. Both from a spectator point of view and from a sponsor point of view, I think we should have a hit there. With regard to the number of cars for next season, it's really too early to predict precisely how many cars we will have. We are getting to that stage where lots of things are happening, lots of things in the process, but I think we are probably looking at something in the range of 27 to 29 cars. So that's approximately where we are right now, with some significant changes, but, obviously, it's up to the teams themselves to announce where they are going forward. So with that, I think I will throw it to our long list of guests today, and we will take it from there.
Q. Andrew, just looking at the whole future, I think everybody is now quite clear where things stand with Indianapolis with their situation on the engine front, and in terms of you going forward, you know, setting now all of that aside - all of that has been discussed and people know where things stand - what do you see now as your primary issues over the next couple of years, and I wonder if you could really identify - there has been so many new races that are being mooted - from Road Atlanta to the place in Germany. Which of those are really the ones that you are primarily looking at for the future growth as well? ANDREW CRAIG: Well, I think with regard to growth, we have to continue to work for a resolution and look for a resolution, but at the same time, we have to plan on the basis that there will not be a resolution. We think that's the only sensible way forward. In our planning of the sport, we are working on the basis of a stand-alone series, but at the same time, that should not be interpreted to mean that we are not working for a resolution in other ways. As I said before, I don't want to comment on the specifics of what we may or may not be doing. In terms of finding a resolution, I really think those things are better not discussed in a public forum, but suffice it to say, that's the way we approached this; work for a resolution, but at the same time, plan on the basis there won't be. You are right, there is a lot out there of great interest, lots of building of tracks and so forth. I think we made no secret of the fact that as far as the United States market is concerned, to race in the south would be important to us, and certainly a race in Road Atlanta would certainly meet our requirements in that regard. We have had discussions with Don Panoz and his people. We seem to have a fine facility that made very extensive improvements, but certainly a place we would like to race in the future, at this stage, there is no agreement to do so. Another part of the world where if you look at a map of the states and look at our current race distribution where clearly we need to look to the future is the west central region. Certainly a race in the Denver area or thereabouts would be of interest to us. Now, of course, overseas, we have been very clear, the number one priority for us in terms of overseas races will be to race in Europe, and within Europe, our clear preference, clear stated preference will be for a race in Germany. Our thinking being there that we like the idea of linking the walls, the western walls, United States, Japan and Germany. We also like the idea of being in what is Europe's most dynamic marketplace and, particularly, being near the eastern Europe where our kind of racing and anything American has great appeal. Certainly, to race in Germany would be our number one overseas goal in terms of additional races. Now, all of that, of course, has to be a combination within the needs of the teams. One thing I have to make very clear is that we have to grow the series with the teams. We can't just add races and hope the teams can finance the addition of those races through additional sponsorship. Any growth going forward has to be very carefully managed with our race teams, and that's where we are at this current time. We have 20 races next year. We will work closely with our teams to see how we can expand a schedule. We can also look to rationalize our existing venues. I am not going to comment on that because, obviously, we have existing contracts right now, and we would honor those contracts in full.
Q. Hi. Do you have any idea when you are going to have the engine rules package ready? ANDREW CRAIG: We have a meeting of our franchise teams - that's the full group of 24 franchise teams - coming up in early January. We will certainly be discussing our engine rules at that time. I couldn't tell you precisely what the timing will be, but that is the next step. We are going to have a meeting in January.
Q. Actually, it's sort of a follow-up, do you anticipate there will probably be some kind of definitive action on engine rules sometime in calendar '99? I know the engine manufacturers have an agreement that it would be a two-year notice, but will we see something happen during calendar '99 on future engine rules. ANDREW CRAIG: Thanks for giving me so much latitude. The answer to that one will be yes.
Q. Happy holidays to you and your family, Andrew. I saw you in New York at the NASCAR banquet. This is kind of in reference with NASCAR. By internal benchmarks, CART probably had one of its best years on the track and financially, but using external benchmarks, the rise in popularity of NASCAR, I wonder what type of long-term planning is going on to get the growth of CART someplace, to get it moving in view of the overall U.S. market? ANDREW CRAIG: Your question is absolutely fair and valid. I mean, quite clearly, NASCAR is a much stronger property today than we are. Regrettably, when we look at the past, we did not make some critical investments in terms of marketing of the sport, and now we are playing catch-up. In fact, that may seem like a long time to come. It has actually only had a marketing department in place for the past 18 months. It has had extensive public relations activities prior to that time, but in terms of a marketing department to help develop the sport, nothing was in place 18 months ago, and perhaps more critically, the budget necessary to carry out that activity did not exist either. Within the resources available to us, we have started to market the sport I think much more effectively. We promote our races effectively. We promote the idea of being a fan of the sport more effectively, and we will continue to do that. Obviously, I would love to have more money with which to do that. We have limited funds. We will be announcing the appointment of a new specialist coming on board in the area of communications to work with our public relations group which will certainly bring more focus away from the racetrack. I think we have done a very good job actually of improving the quality of the communication with you and other motor sports journalists, but clearly now, we need to expand way beyond that and communicate more effectively with the lifestyle sector and, secondly, we need to promote the sport in the literal sense of promotion far more effectively in terms of promotions; allowing people to get involved in the sports, take part in competitions and so far and so forth. One of the key elements to the promotion of any sport in 1999 is the role that sponsors play in that, and that is absolutely critical. It's absolutely critical. Our sponsors get behind the sport, which many of them are, and I think increasingly more will do so in the future. The short message is, it's unlikely we can do this job completely on our own. Very few sports do.
Q. Have you had any kind of quantifiable feedback about the million dollar fan giveaway at Fontana? ANDREW CRAIG: Well, I think there are two ways you can look at that. I think that the promotion itself was extremely beneficial in that it attracted a lot of attention, a lot of interest to our sports. I think it was generally positively received. Obviously, from a television perspective, we are extremely disappointed with the results. On the other hand, I think it would be naive on our part or anybody's part, for that matter, not to recognize the realities of a late season event. The problems of scheduling, particularly late season scheduling remain absolutely key, not just for us, but for all sports. I think the million dollar promotion was considered by certainly most people to have been a positive and constructive step in building interest over the sport. These things don't happen overnight. You don't run a significant promotion, suddenly, people follow the sport. The important thing is to be consistent and communicate similar or the same messages over a long period of time and, obviously, you will attract more fans to follow the sport.
Q. Andrew, you mentioned just a little bit earlier in your remarks that, although while it's recognized that you would like to get back to Indianapolis and find some way to merge, you are also looking at moving CART in such a way that if it doesn't happen, you want to continue to move ahead which, of course, brings up the question of some sort of a signature event which CART still does not have, and I am wondering in your looking at promoting the series, where that signature event falls in the ranking of importance and what the current thinking is on creating that? ANDREW CRAIG: I don't think it's a question of having one signature event. I think it's a question of having two or three highlights throughout the season, which I guess at a time by definition become signature events. That's not something that you can make happen. Those are things that evolve and develop over time. As I was just saying earlier when replying to the last question, certainly Fontana from our perspective will step in the right direction, but it doesn't become a signature event because we want it to be one. It's something you have to work at consistently over many years. In fact, many signature events almost evolve - I am talking now way beyond motor racing - they evolve naturally. You can't force-feed the consumer and say, "well, this is our signature event, therefore, you will enjoy it." What we can do is provide highlights throughout the season. We are working on certain plans right now for 1999, which will focus the consumer's attention, capture their imagination - hence, in the case of Fontana - a million dollars for the driver and the potential for a fan to win a million dollars - capture the fans' imagination and the public's imagination and, hopefully, they will watch you. If they like what they see, they may come back in the future.
Q. There has been much discussion here after the race in Vancouver this last year about what the future of the Vancouver site is, the Vancouver race. Can you just talk about that a little bit? ANDREW CRAIG: We were not satisfied with the racing facility provided in Vancouver this year. We underwent a significant track change. As with any temporary track, although you can look at plans and diagrams and so forth, you never quite know exactly what you are going to get until the weekend of the race. We made it very clear at the time we were extremely uncomfortable with the track and with many of the facilities associated with the track. As you probably know, we put the Vancouver race on our 1999 schedule on a provisional basis. We had what I think have been some very constructive meetings with our good friends at Molson and Molstar, and I think we made a lot of progress. There have been meetings in Toronto at the head office. There have always been a series of site visits. The site visit itself is a challenge because the site itself is something else when you get there, a parking lot, a public road or whatever. The exact situation today is that while -- I'm sorry, let me also add, we also had meetings with our drivers to discuss track changes that we put forward which had been agreed to by Molson to make sure that works for our drivers. Everything is moving in the right direction. I have to say, at this moment, we do not have enough concrete or definitive information that would cause us to take the provisional status off the events. We have received significant inputs in the last couple of days, actually, from Molson at this point, but we have gone back with him today to ask for furthermore definitive descriptions of certain things which we asked for which they agreed to do. We wanted to start out with a little more clarity. I think things are moving in a very positive direction, but at the same time, there is still some work to do before we are prepared to take off the provision status.
Q. Would that suggest then this year's race will be very important to the Vancouver event? ANDREW CRAIG: Yes, I think that's absolutely correct, but I think the important moment is now because now is when we get it right. We won't get it right on the weekend we are racing in Vancouver. We got to make absolutely sure that it's going to be right now. One of the strange features of a temporary road course, you never quite know what is going to be there until about a week after the race or even, actually, three or four days prior to the race.
Q. At the same time next year, there is going to be a major golf tournament, a PGA golf tournament held the same weekend as the Molson Indy. Does that give you any concern? ANDREW CRAIG: The Molson Indy has always been one of the most popular events on the schedule. I believe I am correct in saying it attracts the single largest one day attendants for any events in Canada. I believe that's correct. That is correct. So, obviously, it's a very strong and very, very popular event with an established following. I think one of the challenges is because we have not taken off the provisional status right now, obviously, they need to get out and sell tickets, and they can't do that until we take the provisional status off. They have a backlog of orders, people want to place orders, but they are not actually taking any orders right now. The PGA event I would say is something which I think we can concur, obviously, I think our promoter would be happy if they didn't have this provisional status hanging over them. Obviously, it does provide on the corporate side alternative opportunities for hospitality and sponsorship and so forth. On the other hand, we have a very, very well developed and very successful event in Vancouver which I am very confident can hold its own.
Q. When we announced FedEx in another teleconference, you announced that you wanted to establish a relationship between a brand, your sport and our audience in the interest of what to do for FedEx. I wonder what your feedback, as well as David Shaunfeld's response is after the first year? I ask that noting that you said that it does take time to build this. I wonder if you could talk about mainly FedEx' initial impressions with how things are going? ANDREW CRAIG: I think that as the year progresses with FedEx, more and more people in the management level become involved in the event -- I'm sorry, in the program, and as always happens with these things, you start off with one particular vision of how it's going to work for a corporation, and then when the corporation starts to get into it, we say, well, we can use this to achieve our objectives; in terms of reaching new clients. I think this is a very healthy process, and I have yet to see a sponsorship where this isn't the case. I think over the course of the year, it really has evolved a lot with a lot more divisions getting interested in what's going on here, and I think now we are really ready to go, and I think we are going to see FedEx become an evermore active player going forward. As I think I said on several occasions, I want the relationship between the FedEx name and our series to become unanimous. I want people when they see a FedEx truck to think about our series. That's an attractive situation to be in, particularly, when the obvious in terms of objectives between the organizations exist in terms of speed, performance, technology and so forth and so forth. I think we are beginning to see that develop.
Q. Actually, the earlier question about the Vancouver race, I just had a couple of additional questions to ask you. You have 20 races next year. I don't know how critical the situation is. Is there a deadline that you are working to? Do you have to know if everything -- all the ducks are lined up in place by January 15th or February 1st to go ahead with your full 20 races next year, and if for some reason you don't go ahead with 20, could you at like a moment's notice add an extra race? I am thinking of a race like Road Atlanta where they are basically ready to go. Is the Vancouver situation not that critical where you don't anticipate racing here next year? ANDREW CRAIG: I am going to give you an evasive answer. First of all, our number one objective is to get the situation in Vancouver resolved. That's our mind set. We are not sitting here thinking how can we not race in Vancouver. We are sitting here thinking how could we get this resolved in a matter that works for our competitors, works for our sponsors and works for our teams. That's the driving force here. Having said that, I do have plan B.
Q. Could you tell us what that is? ANDREW CRAIG: No, I really couldn't because, you know, we want to try to get this thing fixed. It would be really inappropriate. Sure we have a contingency plan. You bet we do, I want to get this fixed with Vancouver, and all the signs are there. We will get it fixed. Molson is a terrific supporter of our company. We had a big hit last year, but everything we seen so far, although we are not there yet, I think Molson would like us to be there, we are not at the point where we can take off that provisional restriction, but all things are pointing in the right direction, but it's not done yet.
Q. Andrew, because of the popularity of CART, not so much domestically, but overseas, we were talking earlier about Road Atlanta going into the southeast and going to Germany, are you getting to the point now compared to a few years ago where really you have a lot of, you know, you have a lot of choices to go to and you can be more demanding? I am not just talking about Vancouver, but any of your races where you can be more demanding in terms of facilities. Do you sort of maybe 3, 4, 5 years down the line, there might be quite a shuffling of races, some drops, some added that would work into your marketing plans. In some respects, you probably are more in the driver's seat now than you were five years ago let's say. ANDREW CRAIG: I think even if today we had 20 races and we only had 20 venues, I think we would be looking for the significant enhancements in standards, and when you look around the series as a whole, you look at the quality of the race teams and, certainly, the very high quality of many, many of the racetracks we go to, things have changed. Many of the tracks now have improved dramatically. The corporate side in terms of hospitality has changed out of recognition. I think regardless of the fact that we may well be in a situation where there are more venues out there than we can run, we will still be looking for change, because this is not a static environment. Everything needs to improve, and I think sometimes we tend to think about competition in terms of other race series. That's a part of our competition, but the other part is everything else you can do apart from either watch our race on TV, or go to the events. Quite clearly, if other attractions; not just sports events, other attractions are providing a level of comfort in our facility that we are not providing, then that's going to be a challenge for us. I think it behooves us regardless of what may be happening in racing to look for a consistent upgrading of standards.
Q. Just one brief question. On Monday, there was a board meeting, and we have an understanding that there was a considerable discussion with regards to a marketing and communications initiative. Can you provide us with the substance of that discussion, and how much direction has the board given you as to how much they want to spent and, more specifically, what not are they concerned about? ANDREW CRAIG: Let me address, first of all, the more general issue of concern. Quite clearly, we all want to see the sport grow, and one of the manifestations of growth is our television rates. It's not the only one, but it tends to be the one on which the sport is measured. So, quite clearly, the board, and all of our race teams, all of our sponsors, everybody involved in the sport is concerned to see growth going forward. Marketing is one of the issues we do review at our board meeting among many. We discuss what we are doing and where we are going and what our budgets are, but, obviously, those conversations are not public; they are private among the board members, but when we do have things to announce, obviously, we will do so, but at this stage, we are having good discussions with some possible future directions to what we might do to expand and enhance in our marketing capacities.
Q. Andrew, it's kind of a follow-up again to the Vancouver thing, and I guess, more or less, three courses in general. The street course races certainly raise a profile on bigger markets, but is there concern about the courses themselves being maybe too narrow with I guess either less passing or risky passing attempts and becoming bogged down with yellow flags? Basically, I guess I am just wondering if maybe CART has outgrown the street courses? ANDREW CRAIG: Well, the first point, you are right. The road courses have been very important to the sport. Actually, the term we use to describe this, it's taking racing to the people. What we really love about the street races is that it gives people who perhaps wouldn't necessarily go to the event the opportunity to make a quick decision on a Sunday morning that this is what we will do today, and it's there, it's in their backyard. We call it taking racing to the people, rather than expecting them to come to us. I think it's very, very important, and it will continue to be an important part of what we do. You are actually correct. It's a challenge, and I think they are becoming an increasing challenge. I can only tell you that it's something we address continuously and try to improve road courses. A road course event is rarely the same from one year to the next. There are always things you can do to improve, to widen, to increase run-off areas or whatever. Yes, they are very important to us. Yes, they can be a problem. I can't tell you the solution to that problem. But given they are important, we continue to work at trying to make them as exciting as possible.
Q. Good afternoon, Andrew. Now, to the serious point, I guess, when you look at the last couple of years and then you look ahead to the next couple of years, a two part question here, what is the strongest link that you see in the chain of growth and what is the weakest link? ANDREW CRAIG: I think -- well, we are in a sport where 95 percent of the income of any race team is derived from sponsors. I think I'll answer your question by saying that that is both a strength, but, obviously, a potential vulnerability. Today we have, according to Business Week, a survey by Business Week through IEG, we have over four hundred million dollars worth of corporate support in the series. I have said before, the equation for a sponsor is a very simple one. If the value exceeds the cost, they will continue to support the series. If cost exceeds value, they won't. That really puts an obligation on us in two ways, one, to make sure that we provide the most cost-effective racing that we can within the confines of what you want to do as a sport, what the fans want that sport to be, but it behooves us to make every sensible step to control and contain costs. The other side of that is to obviously make sure the values are there for a sponsor and values, of course, are -- while television racing tends to be the manifestation that people look to, the value is far, far wider than that. The strength is the current strength of our sponsorship base; the weaknesses obviously need to be continuously renewed, and that's something which we all have to work on seven days a week.
Q. At about this time last year, you talked quite extensively about the importance of television and getting the ratings up for the race. In looking back and looking ahead, how do you feel now looking to 1999 about your television? ANDREW CRAIG: In 1998, our network racing was essentially stable, ESPN racing or cable racing was down. Looking towards 1999, we have more races on network. Given that we had a stable network performance in 1998 and given that we are going to have more network races going forward, I think we are in reasonably good shape to anticipate some improvement on the network side going forward. It's hard for me to say what may or may not happen on cable, but certainly given that we have 20 races, given that we have more on network, and given that we will support those races, the majority of those races with advertising, I am reasonably confident that having seen our network racing is stable this year and a decline on cable which is no worse than anybody's else, let me put it that way, I am reasonably confident we may see some progress next year.
Q. I have two questions both relating to possible reconciliation with the speedway. There has been a lot of discussion regarding engine specifications, and I wondered whether Andrew can comment at all about possible challenges in reconciling chassis specifications as well, and the second part of my question is the difficulty in reconciling given the development of possible personal conflicts among some of the high profile players involved. ANDREW CRAIG: I didn't quite understand your second question. Let me answer the first part of that. When you are dealing with engines, you are dealing with, in our case, incredibly important process in terms of Honda, Mercedes Benz and Ford and, quite clearly, we have to look very, very carefully at what their needs are. The relationship between teams and engine manufacturers used to be that of a supplier, but the engine manufacturers is not suppliers, they are real partners in the whole process. On the chassis side of this, I would say that the relationship still is primarily that of supplier. We are able to be much more mindful of our some of more narrow needs in terms of what a chassis might be. Because of that, we really have focused our attentions on the engine side of this whole thing with a speedway at the stage and the chassis will follow. We will have to wait and see where we go on that. Obviously, right now, there are two very different race cars out there, and that's an issue which needs to be addressed, but I am trying to focus at this moment on the car issue which is the engines. Could you repeat the second part of your question because I didn't understand it?
Q. It was a matter of whether personal conflicts among the players involved could be an obstacle to reconciliation. It seemed at the motor sports conference that you and Leo weren't too interested in giving each other the time of day on the panel. ANDREW CRAIG: I wouldn't agree with that, actually. I wouldn't agree with that at all. I think, actually, on a personal basis, the relationships are just fine. Obviously when people represent their special organizations in public, they may take positions that are perhaps more strident than they would personally, but I don't think there is any particular problem in that relationship.
Q. You don't see that as being any sort of an obstacle to meeting some common ground? ANDREW CRAIG: I really don't.
Q. My question is for Andrew regarding the number of countries in which CART is viewed. Can you give me the current number and how do we know how many countries are seeing our races? ANDREW CRAIG: I believe the number is 195. It's 195, 194. There are a number of ways you can derive these pretty basic pieces of information. One is obviously from your broadcast partners, and in our case, we know the organizations with whom we have direct contracts, Canada and Brazil and so forth, and then where ESPN international distributes for us, we know the number from them. They can tell us the number of countries. The second stage of that is if you going to carry out independent research to verify audience numbers. You do that through third parties, through a search company who, in turn, will work with third parties in each country to verify where the race is run. But the number is 195 countries.
Q. Happy holidays to you, Andrew. Two kind of pointed questions. I see a news release coming across my desk that CART hooks up with action performance to start selling CART and FedEx series related souvenirs and, Action Performance, you know, they are named in lawsuits with price fixing on these souvenirs and things like that. You guys are a public company. Couldn't you have found another player in that particular deal? ANDREW CRAIG: Well, Action Performance is also a public company as well, and we obviously look very carefully at who our licensed partners are. Action Performance has a very good reputation in the field. We are very confident they will represent the best interests of CART extremely well, and I have no reason to doubt that. They are a master licensee, I would emphasize. They are not a partner as such. They are appointed to license certain products on our behalf, but, obviously, like any licensee, we will monitor that relationship very closely. I have no reason to believe it will be anything other than successful.
Q. All those big white FedEx trucks that go around the United States, the other official sponsors of a certain series, you know, in the NASCAR Winston Cup Series and Western Auto when they were the official auto parts store, they put that NASCAR logo on there. How much more would it take for them to get that logo on those trucks because your CART logo can go into a lot of places where it doesn't go right now? ANDREW CRAIG: We would love to have that happen and, hopefully,, I will it. It's an incredibly expensive exercise to re-brand trucks. It is incredibly expensive. T.E. McHALE: At this point, I am going to wrap things up for the afternoon. We want to thank you all for joining us on the teleconference with Andrew today. We want to thank Andrew for being with us.