Behind the Shadowy Billion-Dollar Payouts of Formula 1, IndyCar (billion? LOL, I wish), and NASCAR

FriskyCanuck · Jul 31, 2018

In case you are unaware: From left to right, Formula 1, IndyCar, NASCAR

http://www.thedrive.com/accelerator...llion-dollar-payouts-of-f1-nascar-and-indycar

If you want to make a small fortune in auto racing, start with a huge fortune. That old saying is more relevant than ever. The finances behind high-stakes, competitive motorsports are ruthless—even more so than in any other mainstream sport.

The variables behind how teams, drivers, and sanctioning bodies like IndyCar, NASCAR, and F1 make their money aren't only wildly complex, but they can also change frequently, depending on evolving business needs, market conditions, and any number of other factors. Plus, the principals are deeply secretive, with most members of the racing fraternity unwilling to discuss contracts, salaries, or sponsorship deals.

Racing is a performance business. Only the best, the fastest, and the smartest can survive for long. The historical, decades-long losses sustained by, say, the Cleveland Browns, would never fly in motorsports. Whether open-wheel or stock cars, the basic rules of capitalism are applied with neither mercy nor sentiment: a team with top-10 overhead can't finish outside the top 10 and expect prime sponsors and drivers to stick around. The flashy decals will stop arriving and the talent will jump ship. And once that happens, it's game over.

In order to pay the bills, racing teams and their respective drivers need multiple sources of revenue, and these will vary depending on popularity, rank, and driver marketability. These streams of revenue begin with sponsors, and include drivers (more on this later), purse monies, services rendered, such engine building and supporting customer teams (this applies mainly to Formula 1), and lastly, merchandise revenue.

The business of racing is unique in another major way: most of the big-money deals are based on tight-knit connections, and performed behind the scenes. After the Great Recession of 2008, sponsorship dollars became extra hard to grab, and made the recipients of this sparse cash all the more secretive.

After talking to a dozen sources on this subject matter—many of whom preferred to remain anonymous—only one thing was evident: nothing is what it seems, and everything (and everyone) in motorsports has a price.

Obviously everyone knows about the big money that passes through Formula 1 and NASCAR, so those numbers aren't really interesting. The real meat of the article is how much of a pittance IndyCar is getting in comparison.

IndyCar is owned by Hulman & Company, which also owns the Indianapolis Motor Speedway, IMS Productions, and the Indiana-based baking-goods brand Clabber Girl. The Hulman empire is led by its President and CEO Mark Miles, who also bears the title of IndyCar CEO.

To a certain extent, America's premier open-wheel racing series functions like Formula 1, but the fact that IndyCar has part-time drivers and even part-time teams makes things a bit more complicated. In addition, the crown jewel of the IndyCar championship is the Indianapolis 500, which has its own cash and points payout, plus its own driver and sponsorship contracts. It's basically a championship within a championship that in many ways eclipses the series itself.

The biggest differentiator between IndyCar and Formula 1 is that drivers and teams collect purse money directly from IndyCar. This is great for the teams' bottom lines, but it also makes for confusing driver contracts that award sliding percentages of purse money to the drivers based on race performance.

How do IndyCar teams make their money?

You guessed it: Sponsors. However, the first few pennies a racing team earns every year comes from something called the "Leaders Circle" program, which is IndyCar's way of rewarding teams for their full-time participation in the sport. This amount has fluctuated over the years, but as of 2018, it stands at approximately $900,000 for every car (that's car, not team) that's entered for all of the season's races and attends all of the mandatory test sessions. This sum is paid in a per-race basis throughout the season.

When it comes to sponsors, there are teams who have them all like Andretti Autosport and Team Penske, and there are others who hardly have any, like newbies Harding and Juncos. Also, there are top teams like Chip Ganassi Racing who used to have it all (back in the Target days), but their current state reflects how hard it can be to sign multi-year, multi-million-dollar sponsorships nowadays. Their current deal with PNC Bank appears to be bringing decent cash, but sources close to the team claim that everyone at CGR, including Scott Dixon, earns less money today than they did five and 10 years ago.

Paid drivers are another important source of income for some IndyCar teams. In fact, in the case of Dale Coyne Racing and others on that level, it's the only source of income. Extensive conversations with the likes of former professional racing driver Alex Lloyd and half a dozen other active drivers have proven that some teams simply don't care to mine sponsorship opportunities on their own.

How do IndyCar drivers make their money?

"What money?" would be what approximately 30 percent of the grid would say when asked that question. Reporting reveals that top drivers on top teams can make a decent living (although they're still severely underpaid compared to other athletes), that some drivers earn an "ok" six-figure salary thanks to sponsors, and that about 30 percent of the field doesn't make a dime—they're simply hoping for a breakthrough. Most shockingly, there are still others who have gone into debt in order to buy a seat, hoping that any prize money or sponsorship money they earn during the year will repay the loan.

Sponsorship and team salaries aside (if any), this is what drivers could receive from IndyCar each race should they finish in the top 12.

$30,000 first place
$20,000 second
$15,000 third
$11,000 fourth
$10,000 fifth
$9,000 sixth
$8,000 seventh
$6,000 eighth
$5,000 ninth
$4,000 10th
$3,000 11th
$2,000 12th

Think that's not so bad? Think again. Not only are these anemic numbers considerably smaller than what Champ Car and CART drivers used to make in the 1990s, but what most people don't know is that drivers' contracts state that anywhere from 50 to 70 percent of the prize money goes to the team—without exception. These clauses typically feature sliding percentages, in which a driver who finishes 15th and below might keep 30 percent of the prize money, 10th to 15th place keeps 35 percent, the top nine 40 percent, top five 45 percent, and a winning driver gets to keep half of the prize money.

So let's build a hypothetical season for a hypothetical driver with that specific prize money breakdown. If said driver were to win half of the races in the 2018 season (not counting the Indy 500)—and that would be quite the feat—he would only net $120,000 in prize money at the end of the year. Because drivers are considered self-employed and these monies would be earned in several states and under different tax laws, it's safe to assume that our driver would have a tax burden of around 35 percent, which means that if no other income is earned that year, our hypothetical all-star driver would've risked his life at 230 miles per hour for an entire year in exchange for roughly $85,800, after taxes. However, our made-up driver would earn even less if he opted for the minimum life and health insurance plans offered to high-risk athletes.

"Drivers all have to be self-insured," an active IndyCar driver told me. "Nothing is offered from the series. Justin Wilson didn't have life insurance when he was killed."

This is why drivers with decent reputations must spend their entire racing season selling car, suit, and helmet advertising space. If they don't win half the season's races, and they don't race for a team who pays them a decent salary, and they don't have hefty sponsors—they couldn't afford to rent a decent apartment in suburban Indiana.

"At the Las Vegas race when [Dan] Wheldon got killed, that was my last IndyCar race, that year I was probably earning the same or less than one of the team mechanics, but I was paying the additional costs of being a driver," said Alex Lloyd, four-time Indy 500 contestant with Chip Ganassi, Rahal Letterman, Sam Schmidt and Dale Coyne. "And I did buy some insurance that year, so I could at least cover myself against hospital bills or anything like that.

"But when you're in that situation, it's tough. I remember my wife trying to find us a bloody cheap sandwich to eat for lunch at the race, but we couldn't find a $5 Subway footlong anywhere and we couldn't pay $20 for a meal at the track or anywhere nearby," he added. "I kept on saying 'Screw it, we'll keep looking.' That year I was racing IndyCar, and I had finished fourth at the Indy 500 the year before, yet here I am trying to make ends meet with a family and things like that, earning nowhere near enough to survive."

Things like this is why despite all the signs of an IndyCar resurgence back into the mainstream, I still think IndyCar racing as a sport is perennially on the verge of collapse.

Fuck you Tony George, you just had to destroy a sport with a 100 year history because of your petty "America First" ideals.

Behind the Shadowy Billion-Dollar Payouts of Formula 1, IndyCar (billion? LOL, I wish), and NASCAR

FriskyCanuck