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The contraction of the global economy will seriously impact motor sport, perhaps threaten its very existence. Soon after we launched The Last Turn Clubhouse in 2007, we focused on racing as a competitive business in Survival of the Dwarfs. Last December, we warned that the credit crisis would damage the sport with Racing into a Headwind. In July, we examined the threat to racing with Endangered Sport? Automotive Economic Disaster Threatens Motorsports.

This winter the most important discussions are not about who will make it to motor sport grids in 2009 but why they might. Or might not. In extraordinary times, ordinary thinking will not do. The important next step in our continuing coverage, then? Understanding the cost of racing.

Method

In order to understand the challenges facing professional endurance sports car racing it’s essential to know its costs. So we asked our friends for information. From team engineers, managers, owners, and others in the sport we got everything from detailed spreadsheets to a single “bottom line” figure. We heard from prototype, GT, ALMS, LMS, and Grand Am participants. We’ve “sanitized” the data, since we agreed to keep our sources – and their business information – strictly confidential.

Included – and Not

In a two-part article we describe the cost of a competitive prototype or GT entry in the American Le Mans Series. This entry won’t be the smallest, nor will it be the largest manufacturer-supported operation. Rather it will be a reasonably well staffed and equipped team, capable of competing for podium finishes or better. Our team won’t even be the best staffed and equipped privateer, but it certainly won’t be a team run on a shoestring, either.

We did not include public relations costs, at-track or other entertaining, or any sponsor costs and marketing program activation. Those are smart things to do, but they primarily benefit the sponsor by leveraging its direct sponsorship costs, not the team.

There’s a substantial capital requirement before the first green flag waves. That includes a shop and pit, paddock and shop equipment, along with a cadre of skilled full-time personnel. That’s why it makes so much sense to hire a team rather than build one. Here though, we’re going to create our team “from scratch” so we better understand its elements.

In Part 1, we’ll find a shop, acquire equipment and a transporter, and hire the team’s full-time personnel. In Part 2, we’ll buy a race car, hire drivers, then plan and budget an 11 race season.

We considered two cars. The team infrastructure can support two cars nearly as well as one, so there are economies of scale, but for our purposes of presenting costs, one car provides more clarity. We resisted the temptation to compare one series to another. Perhaps we’ll take that up in the future.

Base Camp

First we’ll lease a  permanent shop located in the Southeastern United States where we have easy access to tracks on which we will test and race. About 8,000 square feet will be adequate for storage, office and work space. Annual rent will be $6.00 a square foot, $48,000. The shop build-out will be a one-time cost of $15,000, Utilities – heating and cooling, light, telephone, water, sewer, hazardous disposal - $1,00 a month, $12,000 annually. We’ll charge off – amortize – the build-out investment over three years. That’s also the duration of our shop lease.

For shop and utilities, an annual cost of $65,000.

Stuff

Next is the equipment to go racing. Where we can, we’ll buy previously owned, but serviceable, shop, paddock, and pit equipment. One of our correspondents (who could be counted on the buy top-of-the-line new stuff) put the cost of such tools and equipment much higher than we have – illustrating the wide range of costs between teams.

Those three categories break down roughly like this. It’s somewhat -arbitrary, since there’s overlap between paddock and pit equipment, and shop items that travel to the track.

Like our fixed shop costs, we’re going to cost everything we do on an annual basis over three years, as if we were leasing. We believe the residual value of this stuff will be $100,000 at worst, so our annual cost (depreciation, if you will...though these figures are not to be confused with tax treatment, which has its own rules) is expected to be $50,000 annually. ($250,000 less $100,000 divided by 3) Cash flow (start-up cost) is $250,000, of course.

Big Rig

We need a tractor-trailer to haul ourselves to races and testing. The cost new to purchase and equip one such transporter was put at $750,000 by one correspondent. We’ve provided for our trailer’s contents (most of the stuff that will go to the races with us) in paddock, pit, and race support equipment, above.

Let’s not forget the economic environment in which we are launching our team. It’s tough out there. Major NASCAR teams are merging and dropping entries. There are Grand Am and American Le Mans Series teams not returning. At the beginning of the 2008 season, we lost Champ Car, an entire professional racing series. We’ve got the pick of top-shelf, like-new previously-owned equipment. The tractor will cost $100,000, a fraction of new. We’ll spend $150,000 for a two-car capacity full-featured race-support trailer. We’ll get a generator, AC, an engineering office with audio-video equipment, awning, air lines, lathe, mill, break/sheer, and more. Consistent with our other planning, we’re going to cost our transporter over three-years. At the end of that time, we estimate a residual value of $50,000 for the tractor and $100,000 for the trailer. Resale value could be better than that if racing is “on the mend” by the 2012 season. Our capital cost for our transporter and “home-at-the-track” is $50,000 per year for three years. ($250,000 less $100,000 divided by 3) Cash flow (or start-up cost) is $250,000.

Team Building

Six full-time employees will provide the core talent we need to be competitive. Some haven’t done that, and their results show it.

Our full-time team will consist of a team manager, an engineer, a data collection/analysis technician, a crew chief/chief mechanic, an assistant mechanic/composites man, and a truck driver/pit crewman. The skills mix will vary depending on who’s available. The rest, part-time, will “fly in” for events. Our total permanent personnel annual cost with benefits (healthcare, time off, social security payments, 401K contributions, etc.) is $550,000.

We’ve got shops, equipment, and an experienced and highly skilled “core team.” Our fixed cost (overhead) per annum is $710,000.

Here’s our summary of annualized costs:

Notice also that our team – so far – is neither GT nor prototype. In our example these Part 1 baseline costs are the same. In Part 2, we’ll identify divergence between the two kinds of entries.

We’re ready to find our car, hire some drivers, and budget our testing and racing schedule. All in Part 2.

(My thanks to the many individuals in the sport who helped with these articles.-TWK-)