Why do IndyCar team budgets keep climbing?

Yesterday at 11:13 AM

Annual budgets skyrocketed for IndyCar teams in 2024. Based on general answers provided during the season by many of the owners or leaders of IndyCar's 10 existing teams, there was a steep rise in the season-to-season costs to compete. But what were the real season-long numbers that arose?

Five team leaders, from programs spanning the paddock’s biggest to its smallest, presented RACER with new insights into how and why their expenditures edged uncomfortably close to the breaking point in a single season.

Their responses are universal in some areas, and wholly unique in others. The shift to hybrid powertrains was cited as a common culprit for the spiraling costs, but surprisingly, the new energy recovery systems and their associated components weren't always mentioned first among the reasons for budgetary spikes.

With the new season set to start in a few days, many owners are bracing for another round of increases once the invoices are tallied following the final race on August 31 in Nashville. But before we get there, let's start with the year that recently came to an end.

ANNUAL BUDGET INCREASES FROM 2023 TO 2024

ZAK BROWN, CEO of McLaren Racing, Arrow McLaren: "Our budget went up about 25 percent."

DALE COYNE, Owner, Dale Coyne Racing: "It was up around $2 million for the hybrid, and another $1 million for everything else."

LARRY FOYT, Team President, AJ Foyt Racing: "It has been substantial. We had a 22 percent increase. I just never thought it would get to that point. It was a tough year."

MIKE SHANK, Co-Owner, Meyer Shank Racing: "The increase for '24 was ridiculous. It was beyond 40 percent. Sustainably, we cannot keep doing that. And IndyCar knows that. Prior to that, we were up 10, 12 percent prior to the big hybrid spend."

BOBBY RAHAL, Co-owner, Rahal Letterman Lanigan Racing: "We were up 20-25 percent."

BUDGET BACKGROUNDS

Step back to the start of the 2020s, and a budget of $6 million per car for the year was considered both normal and affordable by half the paddock. On average, $6-8 million was offered as a target for a season with each entry, and outliers existed in the $8-10 million range for IndyCar's wealthiest teams, with one known to be closer to $11 million per car.

In 2023, the season prior to hybridization, the average low had crept up to $7 million, and it was common to hear a sum of $8 million being asked for by teams that weren't championship contenders. One or two were able to function in the $6.5 million range, but were nowhere near reaching victory lane.

Move into 2024, and the new average was the old outlier. To field each car, most teams had to generate $8-10 million at a minimum. A few teams were able to do it for less, but they also ran at the back of the field with one or all of their entries. And the outlier was said to be as much as $13 million per car.

It's still too early to get a proper feel on where 2025's average budgets will land, but those few teams who will fight for the championship are said to be in the ballpark of $11-14 million per car.

Within the answers for where the steep costs were apportioned, some finger-pointing takes place and it's worth providing the origins of the comments. After losing ABC Supply, its primary sponsor of 15 years, the Foyt team had no option but to take on a paying driver in its second car to continue.

By 2021, with Dalton Kellett installed as a full-time driver through significant funding provided from the family's K-Line business, the Foyts were forced to pay exorbitant salaries to get crew members into the team to staff the car. It continued in 2022, and again in 2023 when Benjamin Pedersen took over the second for-hire seat, and once more in 2024 with Sting Ray Robb reportedly bringing the largest payment package in the series.

Foyt wasn't the only team paying a premium to get crew members for cars with drivers who weren't especially competitive, but accurate or not, the Foyts became the team that other teams list as the originators of a series-wide elevation in personnel salaries. Of late, Arrow McLaren and PREMA — two of the wealthiest teams in the paddock — have become synonymous with using their budgets to recruit championship-caliber staff.

A title-winning team recently shared a story about two of their elite employees being hired away to do the same exact job they'd performed in 2024, but with an extra 20 percent added to their salary. It's hard to find the fault in those who chose to make more money for the same role, but it's also easy to see how financial competition at the crew level is being taken to a new level.

A different team also revealed that within the past week they were seeking to hire a front-end mechanic, which is often considered the entry point for new IndyCar crew members. That relatively inexperienced candidate asked for a base salary of $90,000, which is nearly double what it once was. But with pay rates being so high, and with the acknowledged scarcity of experienced crew to hire, it's a price some teams are willing to accept.

The last finger-pointing backstory to know is related to driver salaries, and the paddock blames Andretti Global for their collective outlay. With Colton Herta's rumored salary of $7 million per season, and his teammates Kyle Kirkwood and Marcus Ericsson both said to be over $3 million per year, the days of spending $1.5 million on similar talent is over.

Where having one high-price driver on a three-car team and two who were at a more modest rate was common beforehand, the extreme infusion of funding from Andretti's owner TWG Global reset the marker to where all three drivers are at the peak — if not more — than was previously paid for one.

Like the crews who prepare and run their cars, the vast elevation in driver salaries is a wonderful development for the faces of IndyCar. There have never been more IndyCar drivers making at least $3 million per year than there are today, and with that in mind, here's what the five owners had to say on where the extra 20-40 percent was spent last season.

BIGGEST AREA(S) RESPONSIBLE FOR YOUR BUDGET INCREASE?

BROWN: "It was primarily driven by hybrid, and then driver salaries are going up now that Andretti spent quite a bit of money, and it’s a more competitive marketplace. It escalated quite a bit last year."

COYNE: "You can thank the hybrid unit for that. I had to buy lightweight gearbox cases. Well, I’m a little two-car team. I bought six gearbox cases at $36,000 a piece. Then I’ve got to buy magnesium bellhousings. And all the bellhousings cracked. So we had to buy double the amount of bellhousings, and every piece of wiring on the car, every wiring harness on the car, changed. So much stuff changed.

"I’ve said all along it was $1 million dollars per entry to update your car and your backup car. I think that number is probably more like $1.5 million for a two-car team. That’s $3 million bucks. That’s a big piece of the increase. It's very expensive. It’s crazy.

"Everything gets more expensive. Labor is more expensive. PREMA coming in has just cost us all more in labor because what’s happened is, there’s more demand for labor than there is supply. So your labor cost goes up. The engine leases are up. They tell us there are new things we have to buy for the cars. What's wrong with the same parts that were just on the cars? Doesn't matter. You have to buy them."

FOYT: "It was a big year with hybridization. Plus, also, we were trying to get to that level where we’re competing in the top 10 in the championship, right? So I think a lot of those things added up to get to that number. I do expect that to come down. But also on the horizon, we have that new car on the way, so you have to plan for that and be ready when that comes.

"And we are all competing for the best people that we want to work on our race teams. It’s driven the prices up. And then just normal inflation, from rental cars to travel to hotel rooms to all those things that’s driven the price up. There were a lot of parts that we had to buy for hybrids, these lightweight gearboxes and aeroscreens and things that try to offset with the weight for the hybrid unit, which is great, because we need these cars to be fast, and we need these cars to be still competitive and great to watch.

"It just ticked all those boxes with all of those parts, and that really did make a big price increase. But again, I think the sport is elevating, and everything’s elevating, and that’s good. It’s not like I’m complaining about it. I feel like I just have to go out and raise enough money to keep competing."

SHANK: "What's really cost us is employees. Labor costs. These guys, like Zak at Arrow McLaren, Dan (Towriss at Andretti Global), they just drive the market crazy. We need a correction on salaries. The labor costs are out of control. And there’s a reason; they’re good people, and they just demand a lot of money. Zak, specifically, just throws a ton of money at people. I know, because my guys have been approached.

"And I don’t hold a grudge. But it’s not helping the market, right? He’s doing what he feels like he can do, which is throw a bunch of cash around to try to get people to help his program, which, okay, that’s fine. But the labor market is just brutal.

"That includes drivers, and I’m not in that league where I’m spending the same with Towriss. We’re just not going to do that. We can’t do that, to be honest with you. But it does affect the rest of us. IndyCar salaries took a big dip over the last 10 years, except for a couple of elite guys like Scott Dixon. So now it’s coming back. It’s crept back up and there's no competing with it. (Colton) Herta's over $5 million a year. (Pato) O'Ward, $4-$5 million a year. Scott’s close to that.

"There's a lot of ways they’re worth it, but man, it's just not what can be easily absorbed. We’re looking for value, for drivers that are underrated, that can be fast, and if we get them in the right circumstance, those are my guys."

BOBBY RAHAL: "Some people are just throwing money around like drunk sailors. Our personnel costs were up 25 percent, and that’s forgetting all the other stuff, the upgrades to the car and the hybrid unit. I really look back (on going hybrid), and did you really need to do that? Because it put a big demand on the teams, and maybe some were better able to support that than others, but I think everybody noticed the difference. I don’t mean on track; at your bank. It was expensive, but without question, personnel costs have gone up considerably in the last two, three years, because you have teams like Arrow McLaren, big money, right? Foyt, big money.

"In the end, that’s the market now. It's a seller's market right now. And there’s a lot of people that don’t want to do IndyCar as mechanics because of the demands of the schedule. A lot of the older guys are retiring. So you’re hiring people from Europe, Japan, you name it, to come fill in the gaps.

"That’s a new level. And the costs of doing (work) visas isn't small. We’ve expanded our engineering area considerably, especially in trying to create our own virtual simulation programs. Our engineering department went from maybe eight or 10 people to 20 people and a lot of people are coming from Europe. The real increases were of course the hybrid and then in personnel. And I don’t see the personnel costs, because the people who are good are commanding strong salaries, coming down. If you’re a team, you've got to pay the price."

ANOTHER INCREASE IN 2025?

As much as IndyCar team owners want the costs of competition to hold firm or slightly reduce this season, some — but not all — are bracing for another round of increases.

BROWN: "Budget's up another $1 million per car. And the problem is, we’re all spending it around old cars. This should be money spent buying new stuff."

COYNE: "We're probably going to end up being flat, but flat is up, isn’t it? It never goes down. Have your taxes going down? Nothing goes down. Price of gasoline. Has it gone down? Nothing goes down. That’s the problem with all this."

FOYT: "I'm trying to keep it flat. It's just hard. You could easily spend an extra $500,000 for each car."

SHANK: "About $400,000-$500,000 per car."

RAHAL: "For us, our costs will be up again with employees. Teams are trying to steal your best people, so you have to defend that. I'd say we're with Zak per car, in the least. The hybrid costs were last year but there's more costs here now. It's a huge concern. I don't see any rainbows coming."