NASCAR team owners are pricing sponsors out of the market
by Tom Bowles
So what would you do with $13 million? In this economy, that’s a dollar amount that makes most middle-class Americans drool. It’ll certainly make major athletes jealous, too, after all, that’s more than the highest-paid NHL, NBA and major league baseball players earn, and fairly competitive with sport’s “holy grail” these days, the NFL.
For Clint Bowyer, that money proved the key in extending his career past a free agency desert. 5-Hour Energy is dishing out the cash to sponsor a new, third car at Michael Waltrip Racing with Bowyer at the wheel. Surely, with the decline in attendance and viewership, that amount would be capable of funding all 36 races next season, right?
In fact, that $13 million covers 20 — yes, just over half — of the 36 events on NASCAR’s Sprint Cup schedule for 2012. As a result, the newly-numbered 15 Toyota has marketers working overtime, making cold calls and begging for pocket change to get enough money to “finish out” its primary sponsorship package. In fact, Bowyer’s other option — and current team — Richard Childress Racing, was so disgusted by the financials, it reacted like Bowyer was trying to offer team owner Childress a ’95 Chevy Lumina to compete with. The “thanks, but no thanks” meeting Childress and Bowyer had precipitating their divorce after six years together in Cup sounds like the owner felt he was getting jipped by a used car salesman.
A look behind the numbers, though, shows Childress has reason to be apprehensive. If you do the math, Bowyer’s new team thinks it needs a total of $23.4 million to remain competitive on the Sprint Cup market. A middle-tier team, with no postseason appearances to date, MWR’s final number is just 10 percent lower than AFLAC’s three-year, $78 million dollar deal that is coming to a close at Roush Fenway Racing this season with top-tier superstar Carl Edwards. That shows the market price for sponsors hasn’t declined — if anything, it’s gone up. Childress, knowing he didn’t have full-time deals in place that were competitive for current drivers Jeff Burton and Kevin Harvick (Budweiser sponsors only 20 races on Harvick’s No. 29 car) felt there were too many millions for his marketing company to find in side deals between now and Daytona, 2012. By Childress’ figures, running a $13 million team would either lead to layoffs or diluted competition. Because as Rusty Wallace says, “Money buys speed.”
But how do these prices make any sense? When AFLAC signed on board at Roush Fenway at the end of 2008, it was at the beginning of an economic decline that’s only gotten worse. NASCAR ratings since then, while bottoming out last season, are still off more than 15 percent from three years ago; declining attendance, consumer spending and national exposure (see: moving races from ABC to ESPN) has also cut into the sport’s marketability. For all intents and purposes, the “cost bubble” to support one of these teams should have burst years ago.
You can’t blame the sponsors. They recognize the cracks in the armor. Home Depot, the longtime backer of Joe Gibbs Racing’s No. 20 Toyota, announced Thursday that it’s scaling back to a 24-race deal next season, as Dollar General will cover the other dozen races on Joey Logano’s slate. Home Depot joins a growing trend of longtime sponsors like Budweiser, UPS, Interstate Batteries, DuPont and Caterpillar not exiting the sport but either downgrading their marketing dollars or refusing to increase the budget. Those that remain realize they’re getting more bang for their buck than ever before: at 20 races, for example, people recognize Budweiser as the primary sponsor for Harvick, maximizing exposure for the company without having to shell out the big check that goes with it. The diecasts still get made, sponsor appearances stay the same and companies can lowball, playing one team against the other until they get the leanest, most streamlined deal possible. Others companies, like Crown Royal, Red Bull and perhaps even AFLAC, are choosing to not even bother — scoffing at the price, they’re leaving the car-sponsorship game altogether.
These partial deals, on the surface, are good enough to run a program full-time if multi-car teams were willing to reshape the way they do business. They should be driving down the price … but they’re not. Instead, owners like Jack Roush, Rick Hendrick, Roger Penske and others have refused to change their modus operandi. Instead, as the asking price stays the same, their response is to poach sponsors from smaller teams for lesser prices to fill the slate. The Joe Gibbs Racing/Dollar General deal is the perfect example. JGR needs filler money so it can keep the same price — plus the bloated shop of 300-plus employees to do a job that was done by one-third of the personnel a decade ago — without lowering the budget. The success of the Gibbs program, with drivers Logano, Kyle Busch and Denny Hamlin combined with the media exposure of being a top-tier operation, allows Gibbs to go out and get the money needed to continue.
But the “trickle-down” effect is beginning to take a toll. There are only so many sponsors to go around, and now 20 or 25 companies are being asked to come together to fund full-time operations of just six to eight cars. That means for the lower-end teams, there’s little to no money available, yet the cost of competition hasn’t been cut; the transition to start-and-parking, like Robby Gordon Motorsports’ No. 7 operation in Sprint Cup, becomes the necessary result. Owners enter survival mode, leaving the lower end of the garage a wasteland where teams exist not to please the fans, but use them for a paycheck through parking a three-year-old car five laps into a race. It’s either that or pull out of the sport altogether.
Those “start-and-park” efforts — cars that pull in before the first pit stop — have come as a result of NASCAR’s economic slowdown. Six or seven cars pulling off has been something that fans could handle, but in the wake of these sponsorship cutbacks, the current estimate for 2012 is 10-12, a number that’s one-quarter of the 43-car grid. That’s because this “outpricing the market” mentality has worked its way up to even the top levels of Sprint Cup competition. Both Childress and Roush, 2011 winners and former owner champions, are reducing their fleets from four cars to three. In Roush’s case, he’s watching full-time sponsor UPS, which once covered all the races for David Ragan’s No. 6 team, move over to a lesser, multi-race deal with Edwards’ No. 99 group next year.
Yet Roush, like all the other owners, refuses to drop his asking price. The top-tier group, consisting of five to seven men and two-dozen cars, won’t call the other’s bluff. Each expects to need a certain amount of money to compete. How can Roush spread all that Edwards money around, funding a fourth effort, if $10 million less gives them an engine program with 20 less horsepower than Hendrick? No owner wants to risk their success by cutting costs — and since NASCAR is made up of private contractors, no profit sharing or salary cap in the name of competitive balance is possible.
It’s an ugly scene, this business model that keeps inching towards a crisis mode. And until the owners in question work on cost-cutting, not competitive advantages, it’ll be a game of survivor until the end. Should this pattern continue — and it shows no signs of stopping — what does the final owner standing win, you ask? A chance to start a new stock car league. Because the one we have, NASCAR as we know it, will be dead — no matter how many fans watch TV or hit the stands each Sunday.