If you thought F1 is in bad shape - take a look what is happening in CART. Less than three months away from the start of the 2003 season, the future of the CART championship is looking very dim, with a field that is unlikely to reach the promised 18 cars when the green lights turn on for the first race. The lack of teams, however, is only one of the many hurdles that the American series will have to clear if 2002 is not to be its final year. RaceFax Editor Forrest Bond thoroughly reviews CART's current situation and analyses its chances of survival beyond the new year

With the first race of 2003 less than 90 days away, CART is still well short of cars, and judging by their third-quarter financial statements, short of the cash needed to fill its field. Even CART now admits it may not have a next season.

Following CART is increasingly like dating someone with a split personality. On any given day, you get the best or worst of times, but never know in advance which way the balance is going to tip.

Take, for example, the third weekend in November.

CART's good twin set up shop in Mexico City for the first time in 21 years, and for those who remember what the American open-wheel landscape was like in the 10 years preceding the Recent Unpleasantness, the Hermanos Rodriguez circuit in Mexico City on race morning seemed like the perfect illustration of where CART was headed in those glory days.

The ebb and flow of the sea of humanity which had invaded the expansively and expensively refurbished road course made estimating the attendance difficult, but it was easily over 100,000. And they were into it, following the action, and cheering the three Mexican drivers every time they appeared in the cavern between the seats and suites above the pit garages and the expanse of grandstands opposite. Welcome to la fiesta CART.

The course, abandoned by Formula One because, among other problems, it was as bumpy as a frog's back, still had its washboard sections - most notably in the most obvious passing zone, down at the end of the 202-mph front straight, and in the transitions into and out of the newly poured concrete in the baseball-stadium section - but it was mostly smooth enough. Besides, smoothness is inevitably temporary there. Mexico City lies on what was, before the Spaniards drained it, Lake Texcoco, and the soft sediment which remains tends to move around, even when the area isn't subjected to earthquakes, which occur with unfortunate frequency, and sometimes with frightening severity.

The track is a driver's dream. It seems as wide as an airport runway, and the expansive playground and succession of fast sweepers out back had driver after driver saying this is what road courses should be like. In fact, Hermanos Rodriguez is as good a permanent road course as one is likely to find south of Elkhart Lake and west of Spa.

The cars, however, are the limiting factor, so there was little passing, and most of the excitement was confined to the rather narrow pit road. Not that the crowd seemed to mind, particularly when cheering local hero Michel Jourdain, Jr., as he led for nine laps near the end, and it was impossible to tell whether they were unaware or simply unconcerned that Jourdain was out of phase on pit stops, and destined to be the penultimate driver running at the finish.

Afterward, waiting for the crowd to thin, watching the endless parade of dark-eyed, brown-skinned beauties, and basking in the warmth the November sun bestows on those near the equator, it seemed that even the most die-hard IRL supporter would have admitted that it was an afternoon and a weekend to savor, a testament to the glory of racing on a permanent road circuit.

Mexico City, then, could be seen as a metaphor for CART. On the surface, it was still, tranquil, even beautiful, despite the odd jolts provided mostly by race officials. But deeper, where the bedrock should have been, the foundation was in serious flux.

Uniquely for a CART season's final race, a substantial number of drivers and teams knew that this was their last dance in the series, and the only one who seemed pleased at the prospect, if also somewhat sad, was recently crowned champion Cristiano da Matta, who in two weeks' time would be testing his Formula One Toyota. For too many other drivers, and not a few team owners, there was still had no assurance that they'd be racing at all in 2003, and if so, where or with whom.

Final races are often compared to the end of a school year, but this one was like the end of the last year of high school, with some headed off to different colleges, and others going straight to a menial job or, lacking even that, the dole. If someone had been in possession of a tape recording of the old standard, 'They're Breaking Up That Old Gang of Mine," it would have provided the perfect soundtrack.

Those in Mexico City were too busy with the race to take much if any notice, but CART's evil twin was lurking down there in that bedrock, in the form of the company's obligatory third-quarter '10Q' filing, which had been deposited with the Securities & Exchange Commission while the drivers and engineers were trying to figure out set-ups in Friday practice for the Mexican race.

For anyone who has appreciated the variety of CART's venues, and the premium they have placed on a diversity of skills, reading through the document's 33 pages was like having the hot water abruptly shut off during a shower.

Working through those pages is no more easy than it is pleasant, and the picture which emerges from a close reading of the full document, rather than the synopsis made available initially, is frankly devastating.

In the key paragraph, buried on page 18, CART finally admitted, under pressure of events and from its auditors, that president Chris Pook's frequent assurance that the series will have 18 or more cars next season, and that the coming season will mark the beginning of a turnaround, is anything but assured:

"The Company announced in October 2002 a commitment to invest up to an additional $30 million to ensure that there is adequate participation by race teams in the 2003 season. Although the allocation of these funds has not been finalized, we anticipate that substantially all of the funds will be used to fund a portion of several teams' overall budget for 2003. We believe that it is necessary to provide this additional funding to ensure that there are eighteen (18) to twenty (20) competitive race cars in the field for the 2003 season. Without this additional funding, it is unlikely that there will be eighteen (18) teams, which would result in defaults under certain of the company's agreements with promoters and television. This could result in the company not being able to commence or complete the 2003 race season."

In addition, CART expects its Entrant Support Program (ESP) to cost another $15.3 million, for a total of $45 million. That, however, is based on having 18 cars and 20 races, neither of which now appears very likely.

The list of projected entrants - not the Pookie List of 22 cars given wide circulation within the CART community, but rather the one which president Chris Pook has been showing to far fewer people - was up to 19 cars with the inclusion of two for a team supposedly to be created by Emerson Fittipaldi. It consisted of these teams and car counts:

Newman-Haas 2 cars, Rahal 2 cars, Patrick 2 cars, Player's 2 cars, Herdez 2 cars, Walker 2 cars, Fittipaldi 2 cars, Nunn 2 cars, Fernandez 1 car, Coyne 1 car, and Gentilozzi 1 car.

The reality appears to be quite different. Carl Haas still hasn't found all the funding for one car, and two appears to be out of the question. Quietly, he has ordered IRL Dallaras. Bobby Rahal has one car mostly funded by Gigante, and there's no funding for a second. Pat Patrick is still trying to top off his one-car budget. Walker has announced one car, but still needs money for it, and will not run a second. Fittipaldi is, as usual, all mouth and no substance, and is not expected to field cars. Mo Nunn has announced an IRL program, and can only hope Pioneer will fund one car in CART. Fernandez, Coyne and Gentilozzi have announced one car each, though the latter two are still looking for money. And lastly, Player's has confirmed two cars, fully funded, and Jerry Forsythe will almost certainly resurrect his private entry.

There are others, like Stefan Johansson, drawn to the promise of CART subsidies like small flying things to a light bulb, but all are well short of anything approaching a realistic budget. Especially because of the possibility of such subsidies, and the likelihood that they will shortly increase, no one is going to announce that they aren't going to have the necessary cash, leaving us - and more importantly CART - with much which is theoretical, and little which is fact. Still, it seems most reasonable at this point to conclude that CART has five firm entries (Player's, Fernandez, Herdez), and five almost certain entries (Haas, Rahal, Patrick, Walker, Gentilozzi).

Of those seven teams, Player's and Herdez have reportedly been denied the current offer from CART, of up to $2 million per car in sponsorship-matching funds. The rest will need every penny of that, and in some cases, significantly more, which CART will no doubt provide, once there is no alternative.

That means CART is already in for $12 million of the $30 million reserved for the purpose, and short eight of the 18 cars it has to provide under contracts with race promoters and the television networks. What remains in the 'war chest' is probably $18 million, then, or $2.25 million for each of the missing entries. It won't be enough, because any additional entries are all but certain to be farther from funding for a full season's effort, which is widely estimated to be on the order of $5-6 million per car. It therefore seems reasonable that CART's subsidies budget will have to be increased by something on the order of $25 million, for a total of around $55 million.

In support of those estimates, we would point to the third Chip Ganassi car, entered for Scott Dixon for only a partial season, an entry run at CART's expense to guarantee 18 cars. CART will have paid Ganassi $1.7 million for that, and Ganassi had free engines from Toyota, the use of a Toyota-owned chassis, and a driver who was, shall we say, modestly compensated. Further, adding a third entry to a two-car effort costs dramatically less than fielding a first car, thanks to a number of economies of scale.

On the other hand, the ESP expense is likely to be less than the expected $15 million. Even if CART can assemble a field of 18, it is all but certain not to have all of the announced 20 races, and payments under ESP will be on a per-race basis.

The schedule includes a second CART-promoted race in Chicago, which appears highly unlikely, now that Don Panoz has made it clear he's not interested in sharing any of his American Le Mans Series dates beyond Miami, with which he's stuck.

Rockingham and the Eurospeedway are gone, and talk of creating a series of three European races in May - now just 180 days away - seems hopelessly optimistic.

To keep six of the U.S. races on the 2003 calendar, CART admits it will have to subsidize them - at the cost of a substantial reduction in sanction fee revenues, and in some cases, the contribution of hundreds of thousands of dollars in marketing support - and the number is likely to grow over the winter. Without those sanction fee discounts and subsidies, further races are likely to fall by the wayside. For example, we have it on reasonably good authority that Elkhart Lake will only take place if CART does it Chicago style, renting the track and standing the potentially significant loss.

If, as we believe, there are no more than 17 races finally confirmed for next year, ESP payments for 18 cars will cost CART $12.3 million, a saving of $2.7 million, making the cumulative total in support payments $67 million and change.

CART will also pick up the tab for $275,000 per team in Cosworth Engineering track support, or around $4 million. And CART will forgive $30,000 in fees for Spring Training, if it is held, and three open test sessions, plus $25,000 in entry fees. That will reduce much-needed revenue by roughly $1 million. Not counting the lost revenue, the total for team subsidies - cash out of pocket - rises to $71 million. Theoretically, that should be increased by the $4 million CART is paying Cosworth for the spec turbo engines to be used in 2003, but the money has already changed hands, and CART will recover nearly half of it in engine lease fees next season, if there are 18 cars.

Also under ESP, CART will increase its appearance and contingency payments to teams by $32,500 per car, per race. Given 18 cars and 17 races, that represents another $10 million, bringing the grand total for subsidies to $81 million.

Against that, CART's third-quarter financial statements indicate that the company has only about $75 million in cash and cash equivalents. To fund 2003, then, CART will have to liquidate its investments - losing the interest - and come up with another $6 million, and perhaps much more. To do so out of profits, it will first have to make a profit, something the company has not done since the end of the second quarter of 2001, and does not forecast until 2005, at the earliest. Even at that, there would be nothing left to subsidize the 2004 season, when the state of CART and the economic forecasts indicate that sponsorship will be no easier to find than it is now - from F1 to NASCAR - and team subsidies will, as CART tacitly admits, still be necessary.

The alternative is to make up the shortage of cash for 2003 out of cash flow, which puts the spotlight on CART's declining revenues. Again, the picture for 2003 looks bleak, indeed.

Race sanction fees have always produced most of CART's revenue and profit, but with five races remaining, CART reported sanction fees were down $10.6 million, or 28 percent.

Through the third quarter, CART had been forced to subsidize four of its races, and take over the financial responsibility for two others. The company still wound up with 19 races, one less than originally scheduled, and one less than in 2001.

Of the four races CART subsidized, all lost money. CART reduced its sanction fees for those events by a total of $2.5 million. The deals called for CART to regain the discounts from first profits, and share in any profits thereafter, but booked no revenue. The average loss was $625,000, and in 2003, CART already knows it will have to increase the number of 'co-promotion' races by half, which suggests a further revenue reduction next year of $1.5 million. Other U.S. tracks may well seek similar arrangements.

In Chicago, CART replaced the Ganassi operation as the promoter. With an abysmally small crowd on the Sunday, the June race cost CART $2.1 million, and vindicated Ganassi's decision to opt-out, at the expense of Chris Pook's core reputation as a race promoter.

CART needed network broadcasts to shore up the dismal viewership on Speed Channel, where CART races pull half as many viewers as NASCAR qualifying. Chicago was run as a show of self-confidence, but of at least equal importance, because it was on the CBS schedule of seven races. Ultimately, Miami was important as a replacement for the German race, but also as the final event under the CBS contract.

Miami was promoted by Raceworks, but in little more than name. Raceworks had obtained a CART-guaranteed $2 million loan from the Miami Sports Entertainment Authority. CART made the first $200,000 payment on the note, and paid for everything involved in staging the race. The race-day crowd was a modest 35,000, further undermining CART's promotional skills. All the expenses were paid in the third quarter, and while the revenue was technically booked a few days after the quarter closed, that, too, was known, and CART's auditors - burned when CART confused Chicago expenses with Chicago revenues - insisted that the company record an "estimated" $5.5 million loss in its third-quarter filing. Assuming the $2 million loan has been spent, the race lost $7.5 million, though part of that presumably represents first-year start-up costs.

Trying to keep its foothold in Europe after the loss of the former Lausitzring, CART stepped in to save the Rockingham race. CART cut the sanction fee by a third ($1.4 million), and picked up the $900,000 charged by departing title sponsor FedEx for flying the cars and equipment to England and back. CART also gave Rockingham $250,000 to be used for marketing the event, and even paid $30,000 for a team banquet in England, for which Rockingham promoters were obligated. CART thus spent at least $1.2 million in cash to gain a $2.8 million sanction fee.

The overseas races are meant to generate higher-than-average sanction fees, in the $4 million range, but Rockingham produced just $1.6 million, below the $1.9 million average for the first 14 races which paid sanction fees (CART did not pay itself for Chicago). In mid-November, faced with a loss even after all the discounts, Rockingham slipped out of CART's grasp.

Television revenue has consistently been $5 million a year. This year, it was widely understood, would not be that sweet.

Chris Pook has repeatedly tried to justify the ruinous television deal which was part of the legacy of his equally ruinous predecessor, Joe Heitzler. That justification has always been in terms of the future growth of Speed Channel, but the future is not now, and will evidently be a long time coming.

Speed Channel was, in 2002, a no-loss/no-profit deal for CART (though not for Speed Channel), and CART realized only slightly more than $400,000 in profits on its investment of $2.1 million in overseas television broadcasts.

The first six CBS network races (excluding Miami) have so far produced a modest $1.7 million in revenue from the sale of commercials, or about $283,000 per broadcast, but at a cost of $7.5 million in production costs. The net loss was $5.8 million, which projects to a year-end loss of $6.6 million, a 'swing' of $11.5 million compared to previous years.

Sponsorship is the last remaining significant revenue stream. In 2001, it totaled $12.3 million, down from $21 million the year before. Through the first three quarters of 2002, sponsorship revenue was down 21 percent from the same period in the prior year, to $8 million, and at year's end is likely to be no more than $10 million, or less than half the 2000 sponsorship revenue.

In addition, CART's interest income is down 46 percent, thanks largely to a $12.6 million cash burn, but the company still received $3.1 million in interest income. CART will also obtain a tax benefit from losing money, but that still leaves a net loss of $13.5 million for the first three quarters, and the fourth quarter is not likely to improve that significantly.

Cash to support the cost of the 2003 season is, however, the question, and as we've pointed out, there isn't likely to be enough on hand to cover all the subsidies. In addition to substantial increases in the support payments to teams and race promoters, and to keep a minimum number of races on network television, CART is facing significant reductions in every revenue category.

Sponsorship will be reduced by the loss of FedEx as the series' title sponsor, and the Ford and Bridgestone deals recently announced will have no significant impact on that. Television revenue will be cut because FedEx, Target, Toyota and Honda won't be around to buy commercials, with only a slight off-setting increase in the number of Bridgestone commercials, and the addition of a handful of Ford commercials. Race sanction fee revenue will be reduced again by the increased number of 'co-promotions,' and probably further reduced by a reduction in the total number of races.

On the positive side, race promotion revenue could increase in Miami, and with hopefully lower costs there, race promotion expense could be reduced, but a profit seems out of the question.

Even negative cumulative cash flow can be used to fund operations, if at the cost of extending terms on accounts payable, and there are a significant amount of unknowns in all this. We don't have much confidence, but it is nevertheless at least possible that CART can find enough money to fund an 18-car field, and hold the total number of races at 17 or 18 next season. That, however, leaves 2004 to be subsidized, and even if CART can fund 2003, there will be nothing left afterward.

It becomes, then, a matter of when CART will cease operations, rather than whether or not it will come to that. The people who are running CART now - Chris Pook and the board of directors - know it, which is why they agreed to include in the third-quarter SEC filing the cautionary statement quoted earlier. At this point, however, CART can only suspect it may not have enough money and income to carry it through the 2003 season.

Eventually, one of three things is going to happen to make the unknown known.

One possibility is that not enough people will come to CART, hand outstretched and palm up, seeking money to run a car or two next season, to represent the minimum of 18 cars. If that happens, the party will be over, and the board of directors will have no alternative but to either liquidate the company or find a buyer to take it private. The wild stories of Bernie Ecclestone becoming involved notwithstanding, the only likely candidate is majority shareholder Jerry Forsythe. And as we've said previously, that, too, would effectively kill the series, because we cannot imagine that enough team owners would want to race in a Forsythe-run series, no matter how much money he throws at Forsythe Auto Racing Teams.

Another possibility is that CART will receive sufficient offers to represent 18 cars, but find that the cost of making those potential teams viable for the full season will exceed what cash it has and can generate. That comes to the same thing: liquidate or sell.

The third possibility is that CART may find that it can afford to cover the cost of 18 cars, but that the cost will be sufficiently high that funding 2004 will be out of the question, so that also comes to the same thing, only 12 months later. And delaying the inevitable until then simply squanders investor equity to no real purpose.

There is, however, another possibility. In that, we are reminded of a single-panel cartoon we saw many, many years ago. In it, three men in lab coats are standing facing a chalk board, which is filled entirely by one very long formula. The caption has one of the three men saying to another, "Johnson, I think you may have a problem with that step in the middle." What is in the middle of the formula is a balloon-like shape, in which is written, "God makes a miracle."

Such miracles have not happened to CART before, but we've seen more than one team that was guaranteed not to make it through the winter, only to have a new and well-heeled sponsor suddenly appear, checkbook in hand. Serendipity happens. Hopefully, CART will have it's serendipitous miracle, and even more hopefully, have it in hand before Christmas, because we suspect CART is going to reach its point of decision about that time. As at least the team owners on CART's board know, if they delay the decision beyond that, a lot of people who are remaining loyal to the series are going to be left very high, and very dry for 2003.