The Economics of Racing

Motorsports have always been expensive. As a general rule, the rate of participation in any economic activity is primarily dictated by costs. As costs go up, the number of participants go down. It’s no surprise that the most popular sports worldwide involve kicking, throwing and hitting balls of various shapes and sizes. In motorsports, we don’t have the luxury of such simple equipment.

From the point of view of young racers entering motorsports, we want to create a set of equipment that has the lowest amortized running costs over the course of a season, while also facilitating racing that builds fundamental riding skills which are transferable to the next tier of competition (e.g. Moto3).  In my previous post [1], I recommended copying Rotax’s already successful formula of using spec machinery, as exemplified by the Rotax MAX kart series. But skeptical readers must immediately have thought, “This is gonna be more expensive than running what we already have!”

Perhaps, but it all depends on the implementation. Currently, the Rotax 125 MAX engine costs approximately $3635 [2] new, and the chassis including all running components costs approximately $5000 [3]. “That’s insanely expensive for a mini series!!!”, you may rightly say. And indeed, at this price point, we are better off just using what we already have. But consider that these prices are completely unsubsidized, and have a fairly large profit margin built-in to support medium sized companies such as Rotax, and very small companies such as the chassis manufacturers.

Amateur and semi-pro racing economics currently works as follows: you pay whatever it costs to get on the race track, and if you win, you make some of that money back through contingencies. This is designed to incentivize winning, which it does admirably. However, the critical flaw in this system is that competition fuels expenditure on equipment, pushing costs for newcomers astronomically upwards as the series progresses. This is exactly what we saw in the old 2-stroke 125 series. Even with Honda and Yamaha building production racers such as the RS125 and TZ125, costs kept going up. Teams spent increasing amounts on A-kit pistons, carbon fiber fairings, and a few even got their hands on the luxury Aprillia RSA 125. This happened at local and national series, and especially so at the international Moto 125 and Moto 250 championships. Basic engineering dictates that increasing the power of an engine while keeping displacement constant will lead to a reduction in reliability. Furthermore, it will cost astronomically more to get that last marginal 5hp than the previous 50hp before it; the very definition of diminishing returns. Spending $200,000 to get 5 hp may sound idiotic, but if you’re committed to winning it becomes a necessity. The law of marginal utility fails to convince a rabid paddock hellbent on winning, and an arms race ensues, to the dismay of potential newcomers. Ironically, the 2-stroke engines of old were far cheaper to build and maintain compared to the current 4-strokes, due their simplicity and efficiency from an engineering perspective. The current Moto3 production racers cost far more to buy and maintain than their 2-stroke predecessors, making entry level prototype racing more expensive than it has ever been.

Dorna realized this, which is why they implemented spec engines in Moto2 and heavily restricted Moto3 engine design. The intent of Moto3 and Moto2 are to develop riders for MotoGP, at which point the best riders and best manufacturers team up to create the most competitive package. If the MotoGP junior classes have gone to spec machinery, why haven’t all the national and local classes followed? Sadly, the answer is simple: the manufacturers refuse.

From the manufacturers’ perspective, they don’t see the point of paying contingencies on spec machinery. Spec machinery means that the rider is all that matters, and as such, no credit can be claimed by the manufacturer of the class other than for putting on a good show on reliable spec machines. Hang on a second, isn’t that exactly what people want to see and what racers want to do? A fair race on reliable spec machines? Why yes, which is precisely why Moto2 produces the best racing we’ve seen in decades. Spec racing is fairer for racers, more entertaining for viewers (i.e. customers) and as such more profitable for organizers. The only people who apparently lose out are the manufacturers.

But wait, there is one class of manufacturer that does very well for themselves while holding local monopolies within their respective series: tire manufacturers. Practically every racing series is designed around single tire rules. Pirelli for WSBK and BSB, Dunlop for Moto2 and Moto3, and Bridgestone for MotoGP. The way this works is that organizers use some of the profits from the events to subsidize the costs of the tire manufacturer to varying degrees. The tire manufacturers also receive significant advertising exposure from these series, so as long as the net benefit of subsidization and advertising exceed the costs, the tire manufacturers are happy.

Taking a cue from the tire manufacturers, we have a prefect recipe for our entry level racing series. Dorna and the FIM put out a request for proposals, outlining a new international youth series with two tiers, requiring two spec engines and two spec frames. The first is based on a mini bike (e.g. NSR50), and the second on a 125 bike (e.g. RS125).  The contract will be for a minimum of five years, with an option to renew further. It will explicitly focus on the lowest amortized running cost of machinery over a five year period, at race pace, factoring in the running hours involved in a typical race weekend. Dorna provides a subsidization and marketing package to make participation attractive to the winning manufacturer. Competition between manufacturers will result in the lowest cost, most reliable design. Furthermore, Dorna will focus on subsidizing the initial costs of the bike by reducing contingencies, in order to promote entry from as many young racers as possible. The Red Bull Rookies Cup comes close to achieving this model. However, they do not have regional and national equivalents serving as feeder series, and the machinery is far too expensive and limited. With Dorna’s support, the Rookies Cup could become the equivalent of the Rotax MAX challenge.

As we’ve seen from Moto2, spec racing just makes sense, particularly from an economic perspective. Mass produced spec machines designed for the lowest running costs allow newcomers easy access to a platform which results in incredibly exciting racing, with riders being fairly tested against one another and viewers being treated to a competitive sporting spectacle. In the economic arena of racing, the spec series reigns supreme.

P.S. For a recent look at the economics of the MotoGP class, please refer to David Emmett’s excellent article [4].

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