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We continue our discussion of the cost of fielding a reasonably competitive American Le Mans Series team - as we said, neither the cheapest, nor the most expensive, on the grid. In Part 1 we dealt with certain fixed costs - permanent staff, a shop, our transporter, and pit and paddock equipement, including wheels...well all kinds of "stuff" without which we simply can't go racing. Here in Part 2 we buy our car (both GT and prototype options are included) and hire our drivers. In Part 3, we'll go racing. 

The Fun Part

That would be the cars. If we asked one of the ubiquitous racing forums out there what to buy, we’d get a dozen answers. In GT, Corvette, BMW, Porsche and Ferrari, of course. We don’t know yet what a BMW or Corvette will cost a privateer, and they aren’t available to start the 2009 season anyway, so we’ll chose between the Ferrari and Porsche. We wanted to be competitive, and since we have only the past racing season from which to make such judgments, we think that eliminates the others – Aston Martin, Doran-Ford GT, Panoz and Viper  – from consideration.

Even focusing on those two, there’s a difference of opinion – amongst the most knowledgeable – on costs. We have a pretty good handle on the initial purchase cost. In January 2008, when new Ferraris were delivered, the F430 GT was about $625,000 (€435,000), and in February, Porsche’s 911 GT3 RSR was $700,000 (€510,000). After freight, duties, and various other “hidden” costs, they both arrived in North American race team shops having required about $800,000 out of pocket.

How long we should race them and how much residual value they will have isn’t clear, the latter in particularly being a “moving target.” In an extremely bad economic climate, recovering significant value from a used car, even a racing Ferrari, has to be problematical. Having said that, all we have to go on is history and the good advice of some who are in that market.

We’re told a Ferrari that is raced, particularly one raced successfully, might actually gain value, even in the current business climate. In Maranello’s world, a win at Sebring, Le Mans, or Petit Le Mans, immediately adds between $100,000 and $200,000 to the car’s value, more than that five years later. In contrast, we’re told that an unraced 430GT might lose between $150,000 and $200,000 of its value after a single season.

Should a chassis should be raced for just a single year? More than one team answered that the most competitive teams replace the chassis every year. Those that are not replaced are likely to require upgrade packages whose cost is equivalent to the difference between the cost of the new and the residual value of the old. A high rate of change for both Ferrari and Porsche (and a firm re-sale market) from year-to-year would seem to support that view. There have been years in which the extent of change wouldn’t allow a buy-hold-upgrade strategy, anyway.

Racing Porsches are far more common than are Ferraris. The good news is they are always competitive, and have a large infrastructure of tuners, race teams, and resellers in support. The bad news in that is that they will lose value more readily than a Ferrari. Yes, some will increase in value based on a stellar racing record, but we’d expect the price to follow what’s called a “bathtub curve,” with a fast early depreciation, a flat period, then escalating value. So, how much to budget for car cost, with the requirement that (regardless of real cash flow and business/tax accounting requirements) we end up with an “annual cost of racing for a three year period.”

Our alternate method, assuming new Porsche or Ferrari for 2009, then upgrades at a net cost of $200,000 in each of the following two years. Might we come out with a bit less competitive car than would be the case if we replaced annually? Probably; there have often been some improvements that aren’t able to be delivered as upgrades. In this example, we ‘live with that,’ consistent with our ‘hang in there’ competitive philosophy. The interesting part of this example is that we don’t think that the residual value of a relatively successfully raced Porsche or
Ferrari will be much different at the end of three years than it is at the end of one; it may be higher, it may be lower. The best accounting for it seems to be approximately the same, synthesizing a range of racing records, economic conditions, and differences between the marques.

There’s one more ‘business case’ out there – purchased a previously owned, previously raced Porsche or Ferrari. We’re inevitably giving up some amount of “competitiveness’ (and our correspondents have been quick to point that out) but we’re still employing solid pro drivers (if not Mika or Jörg) and good engineering and management (if not Tony or Thomas). We’re also not reaching all that far into the ‘beater bag.’ Our ‘used car’ will be 2008 model Porsche raced at Le Mans and in the American Le Mans Series as No. 44. We think Seth and his friends took reasonably good care of it, though they didn’t put a win on its racing record. Perhaps we can.

That 911 GT3 RSR will cost us $375,000; we’ll acquire whatever upgrades are available for 2009, and budget $200,000 for that, plus upgrade packages for each of the succeeding years. We’ll be conservative here and postulate a $100,000 loss of value over our three years (it’s a leap of faith that that this car won’t be made obsolete by, say, a 998 model before that, but we think we have to put the option out there). Fascinating, isn’t it? If we want to be even reasonably competitive – we have no intention to be one of those old 996 Porsches noodling around at Sebring – the cost of our car keeps coming out about the same.

More Fun

After looking at the information we were provided, we decided we could reasonably identify the additional costs of a prototype program. In fact, they aren’t order-of-magnitude greater, as long as our team stays away from the “axis of extravagance” (Acura, Audi, Porsche). In fact, the biggest difference we were able to identify in operating a prototype is in the cost of the engine program. Can we be competitive without fielding one of those? We believe that’s in large part a question of team management and engineering talent, so, “yes, we can.”

Sorting through the possibilities, this is an area in which we think a previously raced chassis will work. Dyson Racing did so with the LMP675 Lola B01/60, and we think there are a number of reasonable options, literally from A (Aston Martin Lola) to Z (Zytek). Creation is possible, especially as they bring with them a very attractive engine program, a legacy of the dissolution of the Aim partnership. But that, being unusually inexpensive, can’t be used as  a “typical” program. The Aston Martin Lola option is interesting, but other than being pricy, what’s the status of the engine program there? We have no idea, so we can’t go that way. Similarly, Corvette power is more fantasy than fact. Besides, we’re separating the car from the engine here. Car first.

After picking through the prototypes (new Toyota? old Lola B06/10 AER?) we looked most closely at four: three Lolas (the B07/40, B08/60, and B08/80) and a Ginetta Zytek 07S. We easily tossed out the ex-Charouz Lola B08/80 (too pricey at over a million US dollars), and a Lola B07/40 (lots of them, cheap, but not able to be developed into a contender by our small – but talented – team).

That leaves the Zytek and the Lola coupe. But which one? Why not both? Or rather, either? They are so close in cost ($550K and $650K) on the “previously raced” market, that inclusions, exclusions, and our negotiations will make the difference essentially zero. Let’s assume we can buy either prototype (ex-engine) for $650,000, give or take a bit (this is a budget, not a straight-jacket).

What kind of a hit are we going to take over its lifetime of three years? Repairs, and spares are going to bite, but, we’ll accommodate that in our annual budget, separate from our capital investment. To make this simple – and very, very conservative – let’s assume that our update cost is $150,000 each year, and our prototype is worth only $250,000 after we race it for three years. (We don’t want to be accused of making this racing stuff look cheap, do we?) What we buy this winter will not include next season’s updates. We’ll incur three years of those costs, not two. Here are the calculations:

What’s Under the Hood?

Nothing, yet. Yes, the GT car comes with an engine, but there’s very significant cost to keeping it running over the course of a season. It’s in our operating budget, about $250,000 for the 11 race ALMS season.

For our prototype we have choices. Judd, AIM, AER, Zytek, V10s, V8s, I4s, turbos or not. We need a cost, though, not necessarily  a final choice.

There are as many programs as there are engine builders. As a result, we’re adopting a total cost for engine rights and rebuilds – a single figure that’s a synthesis of the information we’ve seen. That’s $450,000 for an ALMS season of 11 races and an associated testing program, including Sebring in January and various tire tests. As with our GT costs, those will be included in the racing budget, so they aren’t included in our Part 2 cost summary below.

Car Parts: The Nut behind the Wheel

Driver pay is an issue, since the numbers we have are all over the map (as expected, actually). A few “stars” and Porsche (and Audi) factory drivers are at the top of the range. For that latter group that's for  more than 11 US races; it’s for wherever else the company might want to send you, and is structured as employee pay rather than as pay to an independent contractor (meaning that Porsche pays the “burden”).

Among our data is a report of £150,000 for LMS for two drivers (five races plus the LMS test) for a prototype team. That appears to be a "burdened" number. We know that GT drivers can be paid as much as prototype drivers. Some teams supplement “base pay” with a share of winnings and bonuses for poles and fast laps. Some don’t.
 
This is not supposed to be the biggest of teams - even amongst privateers. Perhaps driver pay around $150,000 (unburdened) would be about right. If we treat a driver as an independent contractor, then there is no burdening of the wage rate, and the "base wage rate" is higher since the driver is responsible for benefits, other than some insurance that the team will want to ensure is in place.
 
We won’t delve into the complexities of the "funded driver" market, or combinations of it.
 
The problem (and it is a problem) remains that there is everyone from a journeyman pro to Mika Salo and Allan McNish in the range, so even finding a median gave us fits. Some drivers will see our number and be above it, some below. We want our drivers to be competitive, but we aren’t creating a "dream team."
 
We’ll postulate one "up and comer," and one "veteran," treat them both as independent contractors, and budget a total of $275,000, unburdened (plus travel expenses) for both.

So Far

Our Part 2 costs are:

Adding up Part 1 and Part 2

So, we’ve got our big capital items. Using our highest cost option, we’ve incurred a cash outflow of $1,925,000, of which $1,315,000 is capital investment in cars, transporters, equipment, and shop build-out.

A further note on cash flow, because I’ve had team feedback on that specific point. For racing in general, and in this economy in particular, all costs can be assumed to be “front-end loaded.” That is, you lay out the cash right up front, even for such things as travel. For instance, as soon as the schedule is announced, hotel reservations are made – and paid for. If you buy a new car, you pay for it now – all of it – and you may (will likely) incur a delay in selling it later, during which time you will have to pay for your new car. That level of complexity isn’t something we can accommodate here, unfortunately. We’ve taken pains to identify the difference between costs over time, typical or median costs, and cash outlay.

In Part 3, we’ll analyze the budget for a full racing season, including fuel, tires, repairs, engine rebuilds, and travel.