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CART Going on the Market

With the loss of sponsors and other revenue, racing league hires investment banker to explore financial options and look for a buyer.

June 17, 2003|Shav Glick | Times Staff Writer

Beleaguered Championship Auto Racing Teams Inc., better known as CART, has hung out the "For Sale" sign.

The investment banking firm of Bear Stearns & Company Inc. has been retained to "assist us in exploring strategic alternatives that may be available to CART, including a possible sale of the company," according to Thomas L. Carter, chief financial officer.

The open-wheel racing sanctioning body has been losing drivers, teams, sponsors and TV viewers at an alarming rate in the last several years, and attempts this season to shore up the organization have met with more hemorrhaging of money.

"We nevertheless want to help our shareholders and the larger investment community in measuring CART's progress as the year unfolds and in understanding management's own expectations for the year," said Chris Pook, CART president, in a statement accompanying Carter's financial report.

Associated Press reported Monday that Pook had met Friday with Bernie Eccelstone, head of Formula One, and Craig Pollack, who fields teams in both F1 and CART, leading to speculation that Eccelstone might purchase the series and put Pollack in charge.

"I don't think it's inevitable," said Carter. "It is one of the alternatives, but it's not the only one."

Pook has said since the day he took over leadership of CART that one of the previous management's biggest mistakes was in taking the company public.

During its successful years, CART generated most of its revenue from sanctioning fees, sponsorship and sale of television rights.

When some promoters fell victim to a weakening economy and were unable to pay sanctioning fees, CART began promoting races in important markets this year on its own. Two of those, at Brands Hatch, England, and Lausitz, Germany, resulted in losses of about $3.1 million. Carter said losses from all of the self-promoted races would range between $4.8 and $7.8 million.

Sponsor income, which was at $10.2 million last year, is expected to drop to $7 million to $8 million this year. The difference is primarily because of the loss of income from CART's former title sponsor, Federal Express.

CART has taken its TV program in-house, selling its own advertising time and buying airtime. Currently, it has seven of its 19 races on CBS, with the rest on Speed Channel. Forecasts are dismal, with revenues of $3 million to $4 million coming in, and costs of purchasing airtime and production expenses expected to reach $16 million to $17 million.

Perhaps more frightening to CART followers, the car count, now down to 19, could go lower.

CART was committed to spending $33 million in team assistance this year to ensure that there would be enough cars for the full season.

"Without this additional funding, it is unlikely that there would have been the necessary number of teams, which would have resulted in defaults under certain of the company's agreements with promoters and television," according to Carter's outline.

Then he added, "It is not our intention to provide, nor do we expect to have sufficient resources to maintain, the 2003 level of team assistance payments in the future. The risk remains that due to a lack of sponsor funding, certain teams may not be able to compete in 2004 and therefore we may not be able to maintain the number of cars that are currently participating in the 2003 season.

"We expect that remaining cash reserves, cash flow from operations and available bank borrowings will be sufficient for capital expenditures and other cash needs during 2004, but we also anticipate that by the end of the 2004 season, our cash reserves will be fully depleted.

"Management is currently [seeking] and will continue to seek alternate sources of financing to sustain the company through the 2005 season."

CART's stock, which trades on the New York Stock Exchange and was as high as $33 a share in 1998, closed Monday at $2.98.

Crowd counts are also falling.

Attendance at last Sunday's race at Laguna Seca Raceway, in Monterey, won by Patrick Carpentier wire-to-wire, was generously estimated at 28,000.

"It was down from previous years, but a lot of that can be attributed to the date change," said CART Vice President Adam Saal. "The change the former management made in switching its traditional Laguna Seca date from mid-October to June was a terrible mistake. We know it, but we're stuck with it this year."

Despite a perceived slight by California Speedway officials, who chose to leave the CART race off its 2004 season package, Saal said that CART was looking forward to its next two Fontana races.

CART will close the 2003 season at California Speedway on Nov. 2. The date for next year's race, the last of a five-year contract, has not been announced but is expected to be around the same time.

Last Friday, when it was announced that NASCAR would have a second Winston Cup date at Fontana, speedway officials revealed a 2004 season-ticket package that included -- besides two NASCAR weekends -- dates for motorcycles, sports cars, historic cars and the Indy Racing League, but not CART. It was announced that tickets for the CART race would be sold individually.

"We have never been proponents of season-ticket packages," Saal said. "They usually consist of premier events, such as NASCAR, grouped together with lesser events. We feel that fans should be able to go where they want without having to pay for events they may not plan to attend."

However, CART races have been on all previous California Speedway ticket packages along with NASCAR.

"It doesn't bode well for their support of our type of racing in the future," Saal said. "That seems rather puzzling because there is no question we attracted a much larger crowd than the IRL, yet we are ones dropped from the package."

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