Competition.

Lowering expectations

CART's gloomy financial statement admits the series could run out of cash before the end of the 2004 season. Yet gloomy financial statements have been CART's standard for the better part of three years, and many have been predicting for months that the series will deplete its reserves sometime next season. The significance of this latest offering lies less in the "what'' and more in the "why.''

Days before CART's Vancouver race, on the occasion of the season's halfway point, CART issued a statement to financial analysts. The release said CART's income for 2003 is likely to fall another $4 million to $6 million, while operating costs will increase $1 million. That would increase CART's annual loss by as much as $7 million. Moreover, the release said CART does not expect to turn a profit before 2006 at the soonest (the previous prediction was 2005). Finally, the series officially conceded what many Wall Street analysts said: "Management now expects that it will need additional capital to complete the 2004 season.''

Why now? CART's release was not an official report required by the SEC; it was discretionary "guidance'' to the financial community. Indeed, CART had suspended all guidance to analysts for months until it issued a statement in June, announcing it had retained Bear Stearns to seek buyers, officially initiating the long-anticipated effort to take the company private again.

The timing is interesting. The financial release came days after CART's shareholders meeting in Indianapolis, which included a private meeting between CART management and its board of directors. The board will ultimately have to approve any buyout. While rumors of a takeover by F1 czar Bernie Ecclestone have persisted for months, it is believed the only potential buyers consist of a small group of investors led by team owner Gerald Forsythe. Might the financial release amount to posturing in anticipation of a buyout offer to shareholders?

"There is clearly speculation it might be a tool to drive the price down, that it will make it easier to approve a rock-bottom buyout,'' said stock analyst Dennis McAlpine of McAlpine Associates LLC. "But ultimately they need more than that, which is why Bear Stearns is involved. They would have to say `These are the only buyers we have come up with after a diligent search, and it's take it or leave it.'''

Moreover, as McAlpine notes, the buyout is only the price of entry. Whoever invests in CART will need to recapitalize the company substantially if it plans to stay in business. While CART has officially acknowledged that in the absence of significant changes it will run out of money soon, the bottom line hasn't changed significantly. CART's future, if it has one, lies in whatever becomes of the privatization effort.