T.E. McHALE: Thank you. Good afternoon to every one. Welcome to a special CART Media Teleconference and thanks to all of you for being with us today. Earlier today CART announced that it had reached an agreement with the Corporacion ...
T.E. McHALE: Thank you. Good afternoon to every one. Welcome to a special CART Media Teleconference and thanks to all of you for being with us today.
Earlier today CART announced that it had reached an agreement with the Corporacion Interamericana de Entretenimiento, a Mexican entertainment conglomerate and the Forsythe Championship Racing Team to conduct a round of the FedEx Championship Series in Mexico City beginning in 2002.
The five-year sanction agreement will bring CART $4 million annually, the largest North American sanctioned fee in CART's 23-year history.
The event will be conducted on the road course at the Autodromo Hermanox Rodriguez which is located approximately 15 minutes from the center of Mexico City.
CIE will serve as promotor of the event while Forsythe Racing will provide operational and management expertise for the race.
Joining us this afternoon to discuss this new venture are Joe Heitzler CART's Chairman and Chief Executive Officer, Rodrigo Gonzalez Calvillo, Chief Operating Officer and Vice-chairman of the Corporacion Interamericana de Entretenimiento, Gerald Forsythe, owner of the Forsythe Championship Series and -- FedEx Championship Series entries from Players Forsythe Racing and Forsythe Championship Racing, and Tom Carter, Chief Financial Officer for Championship Auto Racing Teams.
Gentlemen, welcome and congratulations on this announcement.
At this point I am going to open it up to questions for any of our guests.
Congratulations to everyone there. For starters, I guess I would ask about the 25 to 30 million dollars, you know, improvements in investments in the Autodromo Hermanos Rodriguez that's talked about in the release, and could, you know, perhaps someone there explain what those will be. Is it going to be -- are we going to look at pretty much the same track that the Mexican Grand Prix was held on or is it going to be a different layout and what have you?
RODRIGO GONZALEZ CALVILLO: Thanks for the question. What I can tell you is we are doing a number of in-depth technical analyses with our partners at Forsythe based on their extensive background on putting together state-of-the-art tracks around the globe and at this point in time what I can tell you is there is going to be some changes. There's some changes needed, both in terms of design as well as in terms of safety requirements, speed requirements, and a lot of updating of the track. That track has not been used for several years, so it needs a lot of work. Even though it is a great track, a track with a great tradition in terms of Mexico, that has been the site since the '50s where Mexicans have seen the best of auto racing. So we have the best of that tradition. With the efforts put together with designing the track and upgrading the general facility we believe we'll have a gorgeous track for the world fans.
JOE HEITZLER: We could add to that. We are very fortunate in this particular instance to have a gentleman at Forsythe Racing by the name of Ron Dixon who has been involved in the Surfer Paradise design in construction of that facility. He was also a consultant on the Rockingham oval which we'll be going to in England here in the next several weeks. Additionally, most recently, he was involved in the construction and design of the (inaudible) Mexico course. That talent and Mr. Dixon and Forsythe Racing along with CART's Racing Operations staff, will assure us that we'll have a competitive and very exciting track for our fans and our viewers.
Can you just maybe just talk about the significance of this event in Mexico City? We have already got a very successful race in Monterey and then talk about where it fits into the schedule and perhaps when you are going to be announcing the complete schedule for next year.
JOE HEITZLER: Mexican race fans are the best race fans in the world in my opinion. As you know we had a very successful event in Monterey early part of the year. I recall coming to Mexico City in the early '80s when CART was here.
The Mexican race fan and their sponsors deserve a CART race here in Mexico City and we're going to put on the best and the largest CART event in the history of CART.
As far as the schedule is concerned, that's still up in the air. CART has not confirmed their schedule for 2002. We will negotiate with them on a date that's agreeable for everyone.
The $4 million, is that a flat per year amount or is that an average over the term of the contract and then, Joe, what type of co-promotion expenditures or functions will CART be doing in conjunction with this race?
JOE HEITZLER: The $4 million is a per-year for each year. It is not an average. That is the amount for each year. In the co-promotion opportunities that we have here, we'd like to commend Forsythe Racing on identifying a partner with the expertise in the Latin American and Hispanic communities called CIE. They are a publicly traded company in Mexico and have an extensive amount of logistical and entertainment marketing expertise and we feel that any co-promotion that will come out of this will probably be forthcoming as we get closer into the plan.
As you know, today is the first day that we have announced this. But we're excited by the fact that they are the largest operator of theater and entertainment in Mexico. They are used for the logistical issues of bringing in a lot of equipment and people which will assure us a fluid race and an environment for our fans.
But I think you will see that we took a very aggressive step here to increase the quality of our partnerships. For that, we feel that this will be a huge success.
So we would anticipate seeing similar types of co-promotional activities as you will be doing with the other venue promoters both in the U.S. and outside the U.S.?
JOE HEITZLER: You will see Richard Henley our Senior VP of Marketing and his counterpart CIE will be very involved in how we are going to bring this race in the most professional marketing and branding that you could see out of two publicly traded companies.
I would like to express appreciation for the fight that Jerry Forsythe engaged for a better name of CART all over the world and congratulations to Joe Heitzler valiant captain of the valiant American series. Last but not least, bravo to Ron Dixon that it's a right time for the intelligent work and appreciation for the Autodromo like Monterey, Mexico City and Rockingham.
And congratulations to everybody. Thank you.
RODRIGO GONZALEZ CALVILLO: Appreciate the comment.
JOE HEITZLER: Thank you.
T.E. McHALE: Thank you, Leno.
On the $4 million sanction fee, is there any bond guarantee or upfront guarantee and when is that due? Could you talk about the television rights for the race? Given the amount of the sanction fee, what are you looking at for reaching break-even in terms of attendance or sponsorships or how do you plan to get to a break-even or profitable position?
JOE HEITZLER: Let me make sure I understand the two questions. The first question is the $4 million sanctioning fee and the second question again, please --
Actually two of them. Who has the television rights and what is the status of that? What level of attendance do you need in order to make the race profitable?
JOE HEITZLER: What I'd like to do, I will answer the sanctioning question, I will deal with the television rights question and then I am going to let Rodrigo deal with the attendance.
On the sanctioning fee, there are two issues. One is we are dealing with a publicly traded company, CIE. We are also dealing with one of our largest single shareholders in CART stock, and at the present moment we have instruments in place that will guarantee the $4 million payment.
As it relates to the television rights, we will have an additional announcement jointly with CIE and Forsythe Racing on September 10th. Now I am going turn it over to Rodrigo to answer the question about attendance.
RODRIGO GONZALEZ CALVILLO: Frankly, we are very enthusiastic. We're very bullish about the attendance. We believe that at least we're expecting a level of 300,000 people for that race and we're optimistic that we could bring in a larger audience than that. Frankly, CIE puts together more than a thousand shows together a year throughout Latin America. Our expertise is to bring the crowds. Our expertise is to make concepts fashionable across the Latin American region and even though I cannot give you complete specifics about the break-even point, what I could tell you is that if we combine that overcapacity of 300,000 with a level of sponsorship that we intend to bring, we're comfortable over the long run.
We could tell you that CIE without having a specific media is a third largest seller of advertising and alternative promotional marketing in Mexico. The synergies with the rest of the things we sell are huge. We have a sales force that's unparreled, trying to sell these products outside of the market. So we believe that the combination is very powerful.
So again, even though I cannot give you specific statistics about the break-even points, we believe that we'll be comfortable achieving a nice return for the parties in this business.
Do you have a time table on the schedule? Also is there any update on the negotiations with Texas?
JOE HEITZLER: The timetable on the schedule, this being my first year at CART, I have been told by my teammates that the CART schedule generally comes out the first, second week of October. We anticipate that we'll continue that tradition. We also anticipate that with our new television contract this is the first time since 1994 that we have been able to articulate a consensus driven schedule as it relates to locations of our tracks, and keeping with some of our television objectives. So we anticipate that we'll keep on schedule with the 2002 schedule as I mentioned.
No. 2, while I can't talk about issues that are pending litigation, what I can say is that CART and TMS are actively engaged in discussions to resolve their differences.
I heard an attendance estimate of around 300,000. Would that be a race day number or a weekend number that's estimated?
RODRIGO GONZALEZ CALVILLO: What we have established is a minimum starting point is 300,000 over the weekend. That's why we believe we can we're comfortable in reaching a number larger than that. But we want to be as conservative as we can even though we believe that the conditions are set. We have two Mexican drivers with a tremendous following in CART. The level of attention that we gain just from last night to this morning with the invitations locally for some of the local press is huge. We're very enthusiastic in that we could receive a larger number than that 300,000. But for the time being, we'd like to play it safe and have a 300,000 over the weekend.
What has been the largest crowded that has been at that racetrack in the past and are there any sponsors in line to sponsor the race and if so, when do you think there will be an announcement on that?
RODRIGO GONZALEZ CALVILLO: Yes, I think the largest capacity for races was not above 150,000 for a weekend. The conditions were very dramatically different. The market was dramatically different. The number of Mexican drivers in the race was completely different. And since then the development of the whole event industry from what CIE has been able to do has been huge. So we believe that number can be easily increased.
Must have been a bit over 150,000 but not above 200,000. It must have been between that. What I could tell you is there's a number of sponsors interested. Without the announcement just for the past few months with leaks that were out in the market, we had three or four very large multi-nationals approach us. We're very bullish that we could have something set up even with regards to name title over the next few couple of months. So what I could tell you is again that's one -- the largest or biggest areas of expertise for CIE, and this event is being perceived as one of the largest opportunities for brands and marks to reach their customers in a very creative and an interesting way so we believe we're going to attract the big ones.
Sounds like this will be the biggest sporting event in Mexico's history; is that true?
RODRIGO GONZALEZ CALVILLO: I think the only challenge to that would be the World Cup. Remember Mexican fans are also very in tune to soccer, but I could tell you easily that this could be the second largest and much in soccer in Mexico is a tough challenge but this is as close as it gets.
Has it been decided yet or any ideas of what the support groups might be and on the track changes, will they be doing anything with the infrastructure like race control, media center, garage, will be any changes with those?
RODRIGO GONZALEZ CALVILLO: What I can tell you is the level of support in pretty much everything will be dramatically changed. But Ron Dixon and some of our other team members have been studying the track carefully and what I could tell you is there is going to be, with regards to design, similarities and we're going to obviously take what we believe is one of the nicest tracks around the world in terms of longitude and design, but with regards to support areas, they there will be dramatic changes. You can expect the standards that you receive in the best tracks that you visit normally.
I was wondering if could you explain the Forsythe Racing team role a little bit more clearly. I am wondering if -- was this sort of an introduction by CART or is it strictly a partnership with CIE and also will the relationship necessitate some type of filing similar to Rockingham?
JOE HEITZLER: First of all, let me address the relationship issue. I think the relationship grew interestingly enough out of the attention that the Monterey race garnered here in Mexico and being a very attentive entertainment driven company, various members of CIE's corporate management were there. Additionally I'd like to add that one of the members of CIE Corporate Management is a long-time associate of mine from Los Angeles by the name of or Jorge Gonzalez who was the vice president, general manage of Los Angeles Coliseum in the sports arena, Los Angeles. The combination of that with Gerry's devout attention to wanting to see CART grow, conversations ensued, and we accomplished a very significant goal of finding like/same publicly traded company such as ourselves to collaborate with and to put together a very dramatic North American entertainment sporting event. So that's how the relationship transpired. I am sure if Jerry would like to add to that I am certain that he would.
Your second question?
Will this cause a filing similar to the Rockingham filing, the attachment where there is a disclosure of the promoter agreement.
<B>TOM CARTER</B>: Yes, there will be a filing and we anticipate that that will be done with the third quarter 10Q.
Because of the $4 million sanction fee will the prize fund for the drivers and owners be increased or will it be the standard purse?
JOE HEITZLER: One of the issues that we are looking at is increasing purses in CART and we're looking into that right now and we'll certainly have something to announce on that at later date. But that's a good question and we're glad you asked it.
I was wondering if could you explain why CART didn't endeavor to act in a more direct promotional way with the Forsythe and CIE organizations and in the future is that the type of model we're going to evolve to?
JOE HEITZLER: I think the reason behind that was that there was an extensive relationship that was built out of the Monterey race. And Gerry being one of the principles in that race led to this relationship. But I would add that CART is taking very aggressive steps to grow its promoter base and we are going to be looking at making sure our existing promoters are significantly assisted in the marketing area. And we're also very concerned about who our new promoters will be and we hope that they are along the lines of publicly traded companies.
VOICE: I would like to add to that, CART should enter into the promotion of these events as the opportunity presents themselves. To structure a race of this magnitude it takes a lot of hard work on a lot of peoples' parts and to get a publicly traded company in the United States geared up to do this in the short-term is very difficult. But it is my goal in the future to see that CART promotes these races either in a partnership or ownership basis.
That's really the thrust of the question. If you look at -- Forbes Magazine did a very extensive piece on Bernie. They basically said that he charges sanctioning fees ranging between 15 and $18 million for his events. An event like Mexico City with 300,000 people would challenge, in terms of attendance anyway, all the successful F1 races and you know, clearly, you know, there's quite a bit of difference between $4 million and 15 and 18 million dollars. And I am just wondering what the plans are at CART to put in place the personnel and the infrastructure to capture a bigger and bigger piece of those types of numbers; whether it be at Montreal, any of these places? I mean, our attendance level at Surfer's Paradise for example parallels with 10,000 people on Sunday, the attendance of the F1 race, and I would opine that our sanctioning fee is probably a quarter of what they pay. So, you know, clearly it's to this company's advantage to move quickly to be able to have the personnel on board to promote these races themselves rather than, for lack of a better expression, dish it off to other promoters.
JOE HEITZLER: I would submit that we are doing that now. The one issue about CIE, I think the timing of it was probably a major factor, but I will assure you that in all discussions with CIE relative to other locations on the globe where they could assist, we have talked about co-promoting and promoting with them. And there are other issues that we're dealing with right now with personnel that will allow us to promote our own races in the future. We're aggressively working on that.
My concern frankly is not with the CIE -- first of all, I think you are to be commended tremendously, Joe, and Gerry and all rest of you for getting this done in a very short period of time. The economic benefits to CART are obvious to everyone on the call. I guess it's really looking forward to other, I mean, CIE in producing an audience of 300,000 people in conjunction with everybody else on the phone, that's going to (inaudible) to everybody's long-term benefits in a major way. I think CART needs to really upgrade its repertoire of promoters. I will specifically go to, you know, a place like Laguna Seca where the promotor or there's no question that out there a lot of promoters are bitching and moaning about the pressures you people are putting in terms of upward momentum on their sanctioning fees. You know, what I hear from the people on this phone call is more or less we're excited to be bringing a race to Mexico City; we're excited to be paying a $4 million fee and, oh, by the way, it's the highest fee in the history of the company, you know, there are places like Laguna which pays us a diminimus amount of money and really do a shoddy job, and, you know, just trying to encourage you to get more and more of the likes of CIE's on board and marginalize the people who are bitching and moaning.
JOE HEITZLER: We are fortunate to have you as an investor in our company, and we appreciate your participation in the call today and advice well heeded and so noted.
It is a tough act to follow after the last question but I will try. The $4 million, you know, it's very pointedly stated is the highest sanctioning fee for a CART event in North America, I wonder if you could put that in perspective -- that obviously begs the question of where higher fees are paid and how much they are, and wondered if you could put it in perspective? Presumably higher sanctioning fees are paid by some of the other international races and I wondered if could you identify them and put a number on them.
<B>TOM CARTER</B>: To answer your question, we don't publicly disclose our sanction fees unless we are required to such as in Rockingham and some of the other races where we have related parties that are involved.
I can say that this sanction fee is 48 percent higher than our next highest North American sanction fee. I will leave it at that.
T.E. McHALE: With that we will wrap it up for today and thank our guests for joining us today.
Gentlemen, thank you for being with us congratulations again and have a good afternoon.