“It’s a great sport but a very dif­fi­cult busi­ness model”

▶ It will guar­an­tee 36 cars that they will race in all key con­tests ▶ “Spon­sors don’t like risk. Spon­sors want to know they’re in the show”

Bloomberg Businessweek (North America) - - Contents - �Ira Boud­way

Ever since Robert “Red” By­ron in 1948 drove his Ford over the sands of Day­tona Beach at 75 miles per hour for a $1,000 prize, Nas­car has op­er­ated pretty much the same way. Teams showed up at the Florida track with a car, a driver, and a crew and tried to win prize money; they had no larger stake in the en­ter­prise. That all changed this year: When Denny Ham­lin of Joe Gibbs Rac­ing took the check­ered flag at the Day­tona 500 on Feb. 21, he did so as a char­ter mem­ber of Nas­car rather than just a tire-burn­ing free­lancer.

Un­der an agree­ment an­nounced less than two weeks ear­lier, the rac­ing cir­cuit handed out char­ters—some­what akin to a team fran­chise in the NFL or NBA—TO 36 cars. The nine-year char­ters guar­an­tee a slot in ev­ery race in Nas­car’s top cir­cuit, the Sprint Cup Se­ries, and can be bought and sold. Pre­vi­ously, teams held one-year con­tracts that laid out the con­di­tions and prizes for rac­ing. But they had to qual­ify for each race. A team owner who wanted to cash out had noth­ing to sell but a driver con­tract and used auto parts. “We needed to make a con­tem­po­rary, mod­ern­ized busi­ness model,” says Nas­car Chief Op­er­at­ing Of­fi­cer Brent De­war, who hired Mckin­sey con­sul­tants to re­view the fran­chise mod­els of other U.S. sports leagues. “We stud­ied ev­ery­thing,” he says. “This is be­spoke to us. And it’s some­thing we can build on.”

With the an­nual cost of putting a car on the track rang­ing as high as $25 mil­lion, even suc­cess­ful teams don’t win enough in prize money to cover their costs. In­stead, they de­pend on spon­sors for about 75 per­cent of their rev­enue. That worked well enough un­til Nas­car’s growth sput­tered out right be­fore the fi­nan­cial cri­sis of 2008, and TV rat­ings and at­ten­dance dipped. “You saw a num­ber of long­time spon­sors exit the sport,” says Jon Flack, chief op­er­at­ing of­fi­cer of JMI, a lead­ing mo­tor-sports mar­ket­ing agency. Those that re­mained, he says, mostly backed a hand­ful of top teams. Al­though the dom­i­nant own­ers, such as Hen­drick Mo­tor­sports and Joe Gibbs Rac­ing, could count on their pri­mary “hood” spon­sors to cover their costs, many teams lost money.

“It’s a great sport but a very dif­fi­cult busi­ness model,” Rob Kauff­man, co-owner of Michael Wal­trip Rac­ing, told re­porters when he de­cided to shut down the team last sum­mer. Kauff­man, now a co-owner at Chip Ganassi Rac­ing, was a lead­ing ad­vo­cate for team own­ers in ne­go­ti­a­tions for the char­ter plan. “It al­lows us to in­vest for the longer term rather than merely sur­vive year-to-year,” he says.

Now teams can prom­ise spon­sors their brands will be on dis­play in ev­ery race for years. “That may not sound like a lot, but cer­tainly, as you’re out in cor­po­rate Amer­ica ask­ing for the large spon­sor­ship dol­lars that we ask for, that comes up more than you would think,” says Tad Geschick­ter, co-owner of JTG Daugh­erty Rac­ing. Such talks will be eas­ier be­cause “spon­sors don’t like risk,” says JMI’S Flack. “Spon­sors want to know they’re in the show.”

The ben­e­fits of this sta­bil­ity, Flack says, are al­ready on dis­play. Re­gan Smith, the eighth-place finisher at Day­tona this year, is a new driver for Tommy Bald­win Rac­ing. The team ponied up to hire Smith to re­place a less ex­pe­ri­enced driver in Jan­uary, know­ing it would soon hold a char­ter. “I’m not sure they would’ve gone af­ter him a year ago,” Flack says. “The spon­sors all feel good about that, be­cause they’ve got an up­graded guy who gives them a bet­ter chance of more vis­i­bil­ity.”

It’s still pos­si­ble to get into a Nas­car race with­out a char­ter. Four slots in each Sprint Cup Se­ries race re­main open to non­char­ter teams that do well in qual­i­fy­ing races. And they can com­pete in the Xfin­ity Se­ries, Nas­car’s mi­nor league. The char­ter deal doesn’t add to rac­ing teams’ over­all share of the $820 mil­lion a year Nas­car gets from TV deals with NBC and Fox. Nas­car keeps 10 per­cent while pay­ing 65 per­cent to host tracks and 25 per­cent to teams through the prize purse. But the new setup does give guar­an­teed pay­outs to char­ter hold­ers.

The cash value of a char­ter re­mains un­cer­tain. Kauf­mann, whose de­funct Michael Wal­trip Rac­ing team was granted a pair of them, has al­ready sold one each to the Joe Gibbs and Ste­wartHaas Rac­ing teams. He won’t give prices but pegs a char­ter’s value “in the low, sin­gle-digit mil­lions.” That’s not NFL money, but it’s a start for own­ers. Says JTG’S Geschick­ter: “It gives us all a po­ten­tial to have an exit strat­egy, which wasn’t there be­fore.”

The bot­tom line The char­ters Nas­car granted to 36 cars guar­an­tee slots in all Sprint Cup races and make their teams long-term stake­hold­ers.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.