CHAMPCAR/CART: OWRS' first teleconference as new owners, part 2

Open Wheel Racing Series media teleconference transcript with Paul Gentilozzi and Kevin Kalkhoven Part 2 of 3 Q: Are either of you gentlemen going to be attending the court proceedings here in Indianapolis or is that part of it pretty much...

Open Wheel Racing Series media teleconference transcript with Paul Gentilozzi and Kevin Kalkhoven

Part 2 of 3

Q: Are either of you gentlemen going to be attending the court proceedings here in Indianapolis or is that part of it pretty much in the hands of the attorneys now?

KK: That's pretty much in the hands of the interim CEO Dick Eidswick. Our job at this moment is planning the 2004 series and we're looking forward to getting all the details wrapped up.

PG: I think it's safe to say that courthouses are like dentist offices. You have to go once in a while but you really don't like it.

Q: Why is Gerald Forsythe not involved today in this teleconference?

KK: First of all, let me just assure you that Gerry has been a very active participant in the whole process and has been firmly committed. He's the guy that has probably committed more money to the series than any other single human being. He is absolutely been part of everything that we've done. It just so happens that he was doing something else today and we decided that we had to try and communicate to you guys as quickly as possible and he was gracious enough to consent to allow us to get on with it.

Q: When this is done, will there be anything for the stockholders? Also, what can you tell us about your interim CEO?

KK: The answer is, we believe so but this is really a question that you'd have to ask the board of Champ Car. Remember, what we're doing here is, the public company is Champ Car which is the Delaware Corporation, and we're working with the assets of CART which is a Michigan Corporation. Our interim CEO is an interim CEO of CART, not of Champ Car so Dick Eidswick was brought on because we decided we needed someone with significant experience in running public companies and also someone with a financial background. He was chairman of the Michigan Venture Capital Association, has been CFO of a public corporation and CEO of two public corporations. We were very grateful to get Dick enrolled in this and he is the interim CEO, we will see what happens afterwards.

Q: I'm sure it must be exciting to be in a position where you can actually answer questions. Can you try and talk about the package that you expect to present in 2004 and going forward. There are a lot of elements with it in addition to the Champ Cars. Obviously there's the tie-in with the Trans-Am Series and there was also talk about negotiations with Formula BMW. I assume Toyota Atlantic continues to be part of it and lest we forget MotoRock. How do all of those fit into the program.

PG: One of the things that we realize internally is that motorsports needs to be an entertainment venue that provides a package of entertainment with continuity. When you have continuity you control the quality of the product and race fans come to the track and pay varying amounts, but it's generally more than the amount of a theater ticket. They come for the day, they bring their family and they want to be entertained and they wanted to be entertained by a product that they perceive as being important or valuable. So in integrating, we have of course, the big show with the Champ Car World Series and then we have two series that have long national and international histories with what's currently called the Trans-Am and Toyota Atlantic Series. They've competed on somewhat of an equal level in recent years for notoriety and exposure, the Trans-Am Series of course is the oldest road racing series to be run on a continuous basis anywhere in the world and I'm proud to have had an involvement with that but as we look forward, we knew we needed production-based cars so that we had a significant amount of brand in there for people to be attracted to.

There are days when people want to come and cheer for Mustang, Corvette, Jaguar, BMW or Audi. They're fans of that and we see that in all forms of motorsports. So having products that were without that branding, we thought, was deficient. The Formula BMW people have been very patient in allowing us to get this deal done. We know that the right place to have this wonderful beginner series, to have it exposed on the North American continent was with the Champ Car Series. We'll finish those negotiations in the next few days and we hope to include the Formula BMW, which is very successful in England and Asia. We're trying to find the right other, and I'll use the word 'tin top' support series that can bring another brand with its street cars into the weekend. We've used the analogy of the Toyota Celebrity Race in Long Beach. We have a class of World Challenge kind of cars that has perhaps 14 or 16 drivers that come to compete and then another four to six celebrities that can attract attention to the event. I think every year, the Celebrity race is exciting and fun and we enjoy the competition between the pros, celebrities who think they're pros and good sportsman drivers from around the country. So we need a mix, we need a production-based series, we need a beginning open-wheel series, we need Atlantic, which is a great place to be for drivers that want to make a career and for drivers that want to move on. Ryan Hunter-Reay came from Atlantic and won his first race in his rookie year, the youngest American to ever win a Champ Car race, and then we'll move to the Trans-Am Series, which will bring multiple brands and factory hot rods and has been successful everywhere its been and then we'll move to the Champ Car World Series.

Q: And the MotoRock element of it?

PG: MotoRock, we'll be able to do some media clarification here in the next few days. I think we saw proof-of-concept in the Miami event where we had Kid Rock and Elton John. We learned a lot, we were not necessarily clear because we didn't have a great understanding of that industry but we knew that there was an idea there that was exciting to fans and to sponsors and we've seen huge excitement there. We've restructured that, we will continue with the MotoRock name in a newly-structured business. We're meeting with a series of potential partners that have great experience in the music business that can bring expertise that we don't have. MotoRock will continue to play a part and the attention to young people will continue to play a part. I'd be a little malignant here if I didn't talk about the drifting thing. We've had great discussions with two of the drifting series and I think with some certainty, you'll see some drifting at several Champ Car events in 2004.

Q: Can you give us an update on the status of a race in Las Vegas?

PG: That was a highly-discussed topic and there was as much misinformation surrounding this topic as anything. We're committed, Kevin and I and Gerry to racing in Las Vegas. We think that it's a venue that is valuable to us and that can provide huge marketing opportunities as we go forward. So I think with every safe assumption, we can tell you that we are going to be there. Of course the next question always is, 'Where are you going to be?' I can't tell you today. We know we haven't committed yet. In the next two weeks I'll be back in Las Vegas to make some final decisions about where we're going to race and on what kind of track. The open discussion is quite honestly, do we go to Las Vegas Motor Speedway which has had some difficulty promoting open-wheel racing? It's a city full of conflicts so if you're not in front of it, sometimes it is difficult to get people to come out to the speedway. We're convinced that with a joint effort there, we can change that. But we are also investigating doing an event in conjunction with a major casino in a facility adjacent to the Strip.

Q: Is that still possible for 04?

PG: Yes, what it will require is a change of timing in the proposed event. There is a good possibility that you will see Las Vegas move off of that May date, certainly we have two wonderful opportunities to end our season, one would be Las Vegas, the other would be Mexico City, but we've had a lot of discussions about ending our year and completing our championship in one of those two cities.

Q: Are you planning on keeping headquarters in Indy or could that move to Las Vegas?

PG: There was discussion about that and at this point we have decided for 04 that we are going to stay in Indianapolis. We have a commitment to our potential employees and so for now, we are there.

Q: CART lost anywhere from 80 to 100 million dollars last year. The series to date doesn't have a major sponsor. Several races from last year won't run, several look iffy, you have to pay for your TV, teams like Player's have lost their major sponsor, you're saying that you're going to pay less support to the teams, which was the major item of loss last year, something like 60 million I think, and it's probably too late for major sponsors that have already committed their promotional budgets for 2004 to commit to the series so I don't see where the money is going to come from. I hear that some of the tracks saying that they are going to pay less in sanction fees if you return next year. Are you guys prepared to lose another 50, 60, 100 million bucks?

PG: You answered some of your own question. You talked about the support levels that went to teams. I can't make a business decision about whether they were just, whether they proved fruitful or whether they sustained the operation of the series. Those are questions that the last administration of the series knows the answer to. But I will tell you that we've spent significant amounts of time analyzing this business model. Literally months of looking at every dollar, where it went, was it necessary, was it valid. And we've also taken a long-term look at how the income stream diminished to the level it was, because it wasn't many years ago that this was a successful business. How did we lose that level of success? We lost it from the income side and from the expense side. So our plan is to manage both of those ratios. The individual aspects involve specifically, the cost and production cost of television and how we alter that. There are huge differences in those ratios when you look at where you are placed on television so we need to be cost-effective and efficient. If we spend a million dollars to put a race on television and a few hundred thousand people watch, we would have been better off to give them a ticket and a cab ride. We don't want to do that. We want to spend our money where it makes legitimate returns on investment and that's our plan. I can assure that we've done the math. Now, will our business lose money in 04? First of all, it's a private business so that's our business but I can tell you we're braced and planned with a budget that will have a deficit for 04. We also know what we have to manage in the equation to change that for 05 and 06. The succinct part of this is, did we buy it as enthusiasts to lose money? None of us, I can say, like to lose money, nor did we get to buy a fancy car because we lost money all the time, we know how to make money and have a plan here that takes us in that direction. We intimately know the business of the company that we are buying the assets of. We know how they got there, and hopefully we know how we won't get there.

KK: Very simply, a lot of my personal background is in turning around companies like this. There is no great secret in how you do it. There is also no great secret in the fact that you have to be able to invest money to do be able to do that. Are we prepared to make that investment? The long- term belief is that open-wheel racing in the Americas and around other parts of the world can be an economic and viable product, particularly as the economy improves. This is not OPM, Other People's Money, this is our own personal commitment to make this work.

Q: Wonder if you could talk about your individual roles in making this thing happen and how you see it evolving in the future?

PG: (Laughs) Kevin hypnotized me. I was the last guy involved. Kevin and Gerry had been having discussions, Kevin and I started talking about it at a serious level around the Toronto race. We had a couple of meetings and he had been working on it for quite some time prior to that. At that point I was content to play the role that I had. Right away, I of course had known about Kevin and the business success that he had and quite honestly felt that I could learn a lot by being involved and I have enjoyed the competition of doing this deal. That's really the level and extent of my involvement.

KK: Paul of course is, for once in his life, modest and I assure you that it won't happen again (Laughs). The reality is that it was only after the announcement by Champ Car that they had engaged Bear Stearns to try and find alternative sources of financing that I started to look at this because, one, I became concerned about the series and two, it was so obvious after a short period of time that there weren't a lot of people that were going to come forward to try and rescue it. I talked to Gerry and people said that he was the guy that had given more of himself and his time and money to this series than anybody else. He has hardly taken any money out of the series, he's a guy that has kept his stock in and is the man who has behaved most ethically during the whole process. He looked further into it and I realized that while I had some financial expertise, that it was very important to get the race expertise and the series expertise that Paul had, I approached him mainly because we were the only bald-headed, bearded guys left (Laughs) and we have been working very solidly ever since. I have been leading the financial side of it, Paul has been leading the operational side of it, Gerry has been providing his background wisdom throughout the whole process and the three of us really have had a remarkable degree of solidarity, friendship and enthusiasm during this. I've done a lot of deals in my life and this has certainly been one that has taxed all of us and our lawyers as we've gone through it. It's not just the three of us. We've also had a team of about another 10 or 11 people working on this from our side. There's been a huge personal cost to all three of us but we are all committed to doing it. Each one of us has played different roles and it's worked well as a team.

Part 3

-owrs-

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