From Cockpit to Corner Office
Eddie Cheever is a top driver and a driven businessman
Veteran auto racer Eddie Cheever Jr. -- winner of this year's Indianapolis 500 -- took a crash course in entrepreneurship on his journey from driver-for-hire to business owner. The first Indy winner since 1977 to own his team, a company called Team Cheever Motorsports, Cheever has done well on and off the track. But in July, Cheever the businessman balked at paying tens of thousands of dollars for a one-race insurance policy with a $50,000 deductible. Days later, Cheever the driver smacked into a wall at 200 mph, demolishing a $400,000 car, breaking a $120,000 engine in two -- and walking away much the wiser. The mangled assets now sit in the ''corner of horrors'' of Team Cheever's Indianapolis headquarters, a reminder of the perils that await any startup, particularly those with 700-horsepower engines.
For the most part, though, Team Cheever is having a banner year. The crushed car was the same one he drove to victory on May 24 at Indy. Also in the money, four cars behind, was the team's No. 2 driver, Robby Unser. Their combined earnings pumped $1.64 million into the two-year-old company, whose revenues last year were $8 million.
IN THE CHIPS. More important, Team Cheever's Indy run was seen by 90 million viewers, delivering a mother lode of media exposure for all-important sponsors who pay up to $5 million a year to use his racing operation for advertising and promotion. ''They pay the way,'' says Cheever, who views his team as a marketing company first and sporting venture second. ''I don't include one penny of prize money in my budget projections because the racing gods are too fickle.'' His 20 full-time employees are mostly high-tech mechanics. But they also include a marketing manager who helps sponsors get the most out of their affiliation with auto racing -- from logos on the hood to lunches with Cheever -- and a ''hospitality manager,'' or pit-stop concierge, who caters to the needs of sponsors and their guests.
The chief sponsor of Cheever's Indy car, Rachel's Gourmet Potato Chips, has already bagged considerable benefits by taking a chance on a new owner-driver in an upstart racing league. A previous sponsor had jumped ship, and the Minneapolis-based snack food maker signed on just 10 days before the big race. To bring Rachel's on board, Cheever had to execute some flashy maneuvers. First, he persuaded an associate sponsor, Midwestern hardware chain magnate John Menard, to carry Rachel's at his 138 Menards stores. That virtually guaranteed Rachel's sponsorship investment would be covered before a single race was run.
The Indy win turned out to be a delightful double-dip for Rachel's. National print and TV coverage provided exposure worth $6 million to $8 million to those with their brands on the victor's car, according to Ann Arbor (Mich.) marketing researcher Joyce Julius & Associates. ''Since Indy, our phones have been ringing off the hook. Our chip sales have doubled,'' says James M. Garlie, president of RLD Enterprises Inc., parent of Rachel's brand. Garlie has also cashed in on Team Cheever's success by expanding his marketing to the 10 cities where the racers compete.
Courting sponsors is second nature to Cheever, 40. Born in Arizona, he moved to Italy at 4, when his father opened a chain of fitness centers across Europe. Little Eddie soon earned his racing stripes, winning the European and Italian go-cart championships at 15. His formal schooling ended two years later when he signed a $50,000 contract to test-drive racers for Ferrari.
In 1990, he returned to the U.S. to race open-wheeled ''Indy'' cars in the Championship Auto Racing Teams (CART) series. He earned Rookie of the Year honors in his first Indianapolis 500 that year, but he never got into the winner's circle. Frustrated, Cheever felt he couldn't be a consistent winner until he had full control over the cars he drove -- from technology to pit crew.
TRICKY TURN. Opportunity knocked when the Indy Racing League (IRL) was formed in 1996 by a faction inside CART that felt corporate-owned racing teams were running up costs and cutting out smaller rivals. Wanting greater parity, it wrote cost-containment rules that halved the expense of fielding a car. That allowed Cheever to become the IRL's first owner-driver last year. With more than $1.5 million in startup money from savings and private backers, he fielded a trusted team of racing veterans and marketing pros. Since then, he has been reinvesting his profits and expects to have at least $3 million in equity by yearend.
Cheever admits that being the boss was frustrating at first. ''I stormed out of my office, cursing and swearing and telling my staff that I wish I could go back to just being a driver,'' he says. ''As an owner, I have had to learn that the word 'team' does apply to racing.'' To complement his skills, he sought the financial, management, and marketing counsel of proven businesspeople. In particular, he relies on minority partner Clyde Perlee, an Indianapolis native and publishing entrepreneur, and Menard, who has his own IRL team but purchased an associate sponsorship of Cheever's car. Other secondary sponsors include Goodyear, Bosch, True Grit, and Pennzoil.
Win or lose, wagering on Team Cheever as a marketing tool appears to be a smart bet. Auto racing has gained 2.5 million fans in the last four years and is now the No. 1 choice for companies involved in sports marketing and advertising, according to the IEG Sponsorship Report, a newsletter that tracks corporate sponsorships. Sponsorship revenues have grown to $1.1 billion (golf is second), so Team Cheever would seem to be on the right track. The owner has visions of expanding as a testing service for car and component makers, and it wouldn't be surprising one day to see a Team Cheever car running with the big dawgs on a NASCAR track. Fast Eddie has learned there are two basic rules of success that apply to both racing and business: Try to stay ahead of the other guys, and always follow the money.
By Wes Smith in Indianapolis
This article was originally published in the October 12, 1998 print edition of Business Week's Enterprise.
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