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Carter Racing by Jack Brittain & Sim Sitkin

Note: This case is a revised version of an original case written, and copyrighted, by Brittain and Sitkin.
This revision has been approved by the authors. The original version of the case is distributed by the
Dispute Resolution Research Center at Northerwestern University (@m-149-1995).

"What should we do?"

It was now 9 am and Pat Carter had only one hour to make a final decision if they were to be ready in
time for the 11 am start of the Pocono Race - and Pat was not sure what to do. But Carter's brother and
partner, Fred, was on the phone and needed a decision. Should they run in the race or not? It had been
an up and down season so far, and the Pocono race was important because of the prize money and TV
exposure it promised. This first year had been hard because the team was trying to make a name for
itself. They had run a lot of small races to get this shot at the big time. A successful outing could mean
more sponsors, a chance to start making some profits for a change, and the luxury of racing only the
major events. But if they suffered another engine failure on national television ...

Just thinking about the team's engine problems made Pat wince. They had blown the engine seven times
in twenty-four outings this season with various degrees of damage to the engine and car. No one could
figure out why. It took a lot of sponsor money to replace a $20,000 racing engine, and the wasted entry
fees were no small matter either. Pat and Fred had everything they owned riding on Carter Racing. This
season had to be a success.

Paul Edwards, the engine mechanic, was guessing the engine problem was related to ambient air
temperature. He argued that when it was cold the different expansion rates for the head and block were
damaging the head gasket and causing the engine failures. It was below freezing last night, which meant
a cold morning for starting the race.

Tom Burns, the chief mechanic, did not agree with Paul's "gut feeling," and had data to support his
position (see Exhibit 1). He pointed out that gasket failures had occurred at all temperatures, which
meant temperature was not the issue. Tom had been racing for twenty years, and believed that luck was
an important element in success. He had argued this view when he and Pat discussed the problem last
week: "In racing, you are pushing the limits of what is known. You cannot expect to have everything
under control. If you want to win, you have to take risks. Everybody in racing knows it. The drivers have
their lives on the line, I have a career that hangs on every race, and you two have got every dime tied up
in the business. That's the thrill, beating the odds and winning." Last night over dinner he had added to
this argument forcefully with what he called Bum's First Law of Racing: "Nobody ever won a race sitting
in the pits."

Pat, Fred, and Tom had discussed Carter Racing's situation the previous evening. Tom, who was always
enthusiastic, described their record for the season. "Out of the 30 race season, we finished fifteen out of
the twenty-four we raced. When we finished, we were in the top five 80% of the time (12 of the 15 races).
We blew our engine in seven races, so our rate of blown engines is 29%. But we are running fast, so we
have to expect some difficulties. I am not happy with the engine problems, but I will take a few first-place
and "in the money" finishes over seven blown engines any day [Note: The top five finishers in a race are
considered "in the money"]. If we finish in the money we get the $50,000 prize. Not bad."

Fortunately, sponsorship offers critical to the team's business success were starting to come in. A big
break had come two weeks ago after the Dunham race, where the team scored a first-place finish.
Goodstone Tire had finally decided Carter Racing deserved its sponsorship at Pocono and guaranteed a
full season contract for next year if the team's car finished in the top five in this race. The Goodstone
sponsorship would be $1,000,000 a year, plus incentives. Pat and Fred had gotten a favourable
response from Goodstone's Racing Program Director last week when they presented their plans for next
season, but it was clear that his support depended on the visibility they generated in this race.

1
"Pat, we only have an hour to decide," Fred said over the phone. "After paying the $15,000 Pocono entry
fee, we are $32,500 in the red, so the prize money-even without the sponsors-could keep us out of debt
at the end of the season. But, if we withdraw now, we could recoup some of our losses next season, but
we will lose Goodstone for next year. If we run and finish in the top five, we have Goodstone in our
pocket and can add another car next Season. You know as well as I do, however, that if we ran and lose
another engine, we are back to square one next season. We would lose the tire sponsorship and a blown
engine is going to lose us the Dynaco Oil contract for next season. No oil company wants a national TV
audience to see a smoker being dragged off the track with their name plastered all over it. The oil
sponsorship is $500,000 that we cannot live without, and it's ours as long as we don't blow an engine.
Think about it - call Paul and Tom if you want- but I need a decision in an hour."

Pat hung up the phon~ and thought about this first season. On the table was a copy of this month's
edition of Racing News, an independent publication written for racing enthusiasts. Pat couldn't help
feeling slightly concerned at the following quote:

"In comparison to other teams on the racing circuit, the Carter Racing team, run by Pat and Fred Carter,
has been truly average. This inaugural season has shown them to be a "middle-of-the-bunch" racing
team. In one race they look great and in the next they look mediocre. Although they had had some
success, they are not yet in the top tier on this racing circuit. In this writer's opinion, it appears they need
to improve their mix of training, experience and know-how to succeed in the competitive world of car
racing."

Pat looked out the window at the crisp, fall sky. The temperature sign across the street flashed: 40
DEGREES AT 9:23 AM.

Exhibit 1: Note from Tom Burns

Pat,

I got the data on the gasket failure problem from Paul. We have run 24 races this year, with temperatures
at race time ranging from 53 to 82 degrees. Paul had a good idea in suggesting we look into this, but as
you can see, this is not our problem. I ran a statistical test to see if the gasket failures were related to the
temperature and it showed no relationship.

Ambient Temperature for Races with Blown Gaskets

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C) a, 2 •
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0 .2

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~ 1 • •• • •
z 0
50 55 60 65 70 75 80 85 90
Ambient Air Temperature

Tom