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Article originally published in 2008 Athlon Sports Racing annual
— by Monte Dutton
Many NASCAR insiders would prefer that the spots in the starting fields of Sprint Cup races were determined by franchises. It’s a team sport, they say, so why shouldn’t it be composed of organized teams assured of a chance to compete in every race?
“There are two or three of us who like the idea of a franchise,” understates Richard Petty. “NASCAR, basically, does not.”
It’s a complicated issue, and the central complication is the complexity in comparing auto racing to other sports. Stock-car racers are fond of calling theirs “the ultimate team sport,” though, by definition, it isn’t a team sport at all.
Two teams don’t meet and race against each other. Forty-three contestants — yes, they’re composed of drivers with teams behind them — compete on an individual basis, which is more comparable to what would otherwise be referred to as an individual sport, like golf. There’s an element of teamwork in every sport. Even golfers use clubs that are constructed for them. The team element is more relevant to NASCAR, but it isn’t definitively a team sport.
The absence of franchises undermines the market value of teams because they have no reliable right to compete in every race. NASCAR has evolved in a way that protects teams in a manner that would’ve been unthinkable a decade ago. Now, for instance, 35 spots in each race’s 43-car field are guaranteed on the basis of owner standings. During the season’s first five races, those spots are determined by the standings of the previous year, which makes it difficult for start-up teams to acquire security. This very issue greatly complicated Toyota’s entry into what is now the Sprint Cup Series in 2007.
“I believe that a franchise system — and I hate to use the word ‘franchise’ — is the right thing to do for the investment of the car owners and, primarily, the investment of the sponsors,” says Jeff Burton. “By the same token — what about, in baseball, when the Florida Marlins win the World Series and then dump everybody afterwards — there ought to be a way you can lose your franchise. You shouldn’t be able to operate with a continuing losing record. You should not be able to keep your franchise without putting a competitive team on the court.”
Or the track.
“You should not be able to do that,” Burton continues, “but I believe that we are to the point where our car owners have so much invested and our sponsors have so much invested that we’ve got to find a way to protect them. The ‘top-35 thing’ works better than the way it used to be, but in this environment, it’s not good enough.”
From NASCAR’s perspective, the current system works. It conveys a fleeting, unofficial franchise system based on recent performance. While franchising appeals to many within the sport, it’s objectionable to hard-liner fans who think every race ought to be contested between the fastest 43 cars based on qualifying speeds. The fact that qualifying mainly determines the starting order, not the composition of the field, is disturbing to purists.
The controversy even divides families. Petty, who won more races than anyone in NASCAR history, still heads up the team founded by his late father, Lee, who himself was a three-time champion. Richard is an ardent supporter of franchises. His son, still-active driver Kyle, is unsure. “I think it should be the fastest 43 cars. I have no problem with that,” says Kyle Petty. “That’s from the competition side. This is where this is a goofy sport. From an owner’s side, I should have a franchise. We’ve been here 60 years doing the same thing, beating our heads against the wall pulling from California to New York to Florida and back six times a year with some of the schedules they’ve made throughout the years, and we’ve got nothing to show for it.
“Is it a sport or a business? It’s really a business six days a week. It’s only a sport on Sunday, but it’s a business Monday through Saturday. That’s the way it works. From a business side, I’m not against the top 35 having a free ride. I’m not against a franchise, but for the quality of the show, it should be the 43 fastest cars.”
The official NASCAR position, as conveyed by spokesman Ramsey Poston, holds that the current system is an effective compromise. From another perspective, though, it has the effect of creating a makeshift franchising system in which all the value and power remains centered in the ruling body’s hands. There’s no long-term value for teams like Petty Enterprises and the Wood Brothers that have been instrumental in the sport’s history. And most observers don’t see any further shift toward franchising in the foreseeable future.
“The issue of franchises in NASCAR has generated quite a bit of buzz, mostly because of all the new owners and investors coming into the sport,” says Michael Smith of SportsBusiness Journal. “As people try to put two and two together to read the changing landscape of ownership in NASCAR while wondering why so many new owners are suddenly interested, many have speculated that franchises are on the horizon.
“But there’s really no reason, from NASCAR’s perspective, to believe that franchises will be issued in the near future.”
Even as NASCAR officials strain to come up with meaningful cost-cutting measures, costs associated with every aspect of the sport are escalating at a rapid rate. Teams that once constructed race cars in a somewhat modest shop are now employing hundreds. They own and maintain private jets to transport personnel to tracks all across the country. Some field teams in all three of NASCAR’s so-called “major touring series” — Sprint Cup, Nationwide and Craftsman Truck.
One of the chief recent developments is the soliciting of lucrative investors with relatively little prior knowledge or interest in the sport.
John Henry, principal owner of the Boston Red Sox, is now Jack Roush’s partner, hence the name Roush Fenway Racing. George Gillett, owner of the Montreal Canadiens, bought into Ray Evernham’s team, making it Gillett-Evernham Motorsports. Two members of the Arizona Diamondbacks’ ownership group, Jeff Moorad and Tom Garfinkel, now own controlling interest in Hall of Fame Racing. It’s a trend that shows no sign of abating, and all this new capital makes it more and more difficult for family teams like Petty Enterprises to remain competitive.
Rob Kauffman, a London-based investor, bought half of Michael Waltrip Racing. One of Kauffman’s advisers is real-estate developer Johnny Harris, who also acquired a stake and now sits on the team’s six-member board. Harris is a member of the Carolina Panthers’ ownership group.
“John Henry is an excellent example of a strategic investor,” says Timothy Frost, whose firm, Frost Motorsports LLC, has participated in securing sponsors and investors. “These investors own companies active in a wide range of activities related to sports. They’re able to use their resources in ways — marketing, sponsorships, media exposure, souvenir and collectible sales — that benefit the race teams in areas other than just performance on the track.”
Still, the ultimate value and power remain firmly centered in NASCAR’s hands. The system as it has evolved has conveyed only fleeting, short-term value to the participants. The sport is changing rapidly, and it’s hard for longstanding teams not to be swept away in these changes.
“If you don’t have an open mind, you’ve got to be surrounded with enough people who do have open minds to help you make the transition or change you have to make,” says Bobby Labonte, who now drives for Petty Enterprises.
“It takes a while to change.”
A Forbes magazine article estimated that the average NASCAR team is valued at $120 million. Its estimate rose by 67 percent between 2006 and 2007. According to the article, 20 percent of NASCAR’s top teams were losing money, in part because Forbes judged there to be 41 in the “top teams” category. The most valuable team, by those estimates, was Roush Fenway Racing at $316 million. Hendrick Motorsports, the most successful team of 2006, was valued at $297 million, followed by Joe Gibbs Racing at $173 million. The Forbes estimates were based on total sponsorship values and race-related income.
As a comparison, the average National Hockey League franchise is worth $150-200 million, according to Forbes.
Forbes’ Jack Gage writes that licensing is on the decline in NASCAR, and sponsorship rates have flattened out since 2003. Despite rising costs, the average NASCAR team still banks $12.3 million in profits, or roughly 15 percent of revenue, and estimates say that $100 million will be saved sport-wide over the next two years by switching to the Car of Tomorrow.
“What franchising would do is give team owners the security to know that they’ll be able to compete from year to year, that they’ll have a spot on the track, compared to the current model where teams are often reliant on sponsorship to keep their doors open from year to year,” says SportsBusiness Journal’s Smith.
“Many of the top owners in NASCAR have operations that take on franchise tendencies anyway, which is why there’s a deepening gap between the haves and have-nots. Hendrick, Roush Fenway, GEM (Gillett-Evernham) and now MWR (Michael Waltrip Racing), among others, all can rest assured that they’ll be around for years to come because their owners don’t rely on their NASCAR teams for income. They all have developed alternate sources of income. … Teams that rely on sponsorship for 80 percent of their revenue without any other significant streams of income are more likely to run the risk of going out of business.”
Jack Roush admits his agreement with Henry and Fenway Sports Group began partly as a response to Toyota’s entry.
“Toyota will not find that others will wither in their path as they have found in other series in which they’ve competed,” says Roush, a longtime Ford owner.
“Toyota is bringing about changes in the way we do business. They are willing to pay more for a service than sound business practices would otherwise justify.”
“NASCAR certainly understands (the Toyota) problem,” Roush adds. “I regard the Car of Tomorrow as primarily NASCAR’s initiative to limit technology as a way of controlling technology.”
Joe Gibbs took another tack. The Washington Redskins head coach, whose NASCAR operations are managed by his son J.D., switched his three-car team from Chevrolet to Toyota. Three of the sport’s big names — two-time Cup champion Tony Stewart, 2006 Rookie of the Year Denny Hamlin and Kyle Busch — will compete in Toyotas this year, greatly enhancing the likelihood that the sport’s newest manufacturer will begin winning races this year.
That move, in turn, is a reaction by Toyota to the frustrations associated with entering the sport. Had Toyota not successfully wooed JGR away from Chevrolet, it would have begun the season with only one driver, Dave Blaney, assured of a spot in the Daytona 500 field. Now there will be at least four.
Burton, one of three Sprint Cup Series drivers competing regularly for RCR, admits the future is fraught with uncertainty.
“I’m nervous about having manufacturers, sponsors, and millions and millions of dollars put into this program for marketing reasons, without the product on the race track, and that’s going to happen to major teams and major corporations,” he says. “In the long run, I don’t think it’s good for our sport. I do believe that there is a ‘survival of the fittest’ mentality in this sport that has worked for a long time.
“In today’s economy and taking into account the ultra-competitive nature of the sport, I believe there need to be some changes. I don’t believe it’s in our sport’s best interest, being that without corporate involvement, we’re nothing. We can’t even come close to running our programs on the purse (prize money). It’s not even a thought. It’s NASCAR’s charge to find a way to make that work for everybody. … The current program, locking in the top 35, is the best we’ve ever had, but it’s time to find a way to do it even better.”
To Burton, teams deserve even greater security.
“With the Dallas Cowboys and the Carolina Panthers, they know they are going to have a chance to play in every game,” he says. “They don’t know if they’re going to make the playoffs, but we need that here. I think it would protect the owners, and it would protect our sponsors and I think we have to find a way to move toward that. I think we need 43 teams that know they are going to be in the show, but, at the same time have to do things to validate that they deserve a franchise.
“We need to find a way to guarantee everybody they are going to be in the show for our sponsors and car owners. It isn’t about the drivers; it’s about the sponsors and the car owners. At the same time, if a car owner doesn’t do a certain amount of things, he could lose his franchise.”
Four-time Cup champion Jeff Gordon owns a stake in Hendrick Motorsports, giving him a perspective derived from seeing the issue from two sides.
“It doesn’t necessarily have to be franchising,” he says, echoing Burton. “I’m a big fan of making these teams hold their value. Look at our team. It basically has no value other than the people, the machines and the building space that we have.
“Somebody can go out there and basically start up a new organization. Maybe Hendrick Motorsports is a bad example because it’s an organization that has been so solid that it might have a little bit more value than some other teams out there, but other than having our sponsorship dollars and … the winnings that you get, the value that should come along with it isn’t there. Hendrick has spent hundreds of millions of dollars over the years to get our organization where it is.
“If something catastrophic were to happen, then it wouldn’t be worth the money that’s been invested at this point.”
No reliable, specific plan has emerged to accommodate the concerns voiced by Burton, Gordon and others. The absence of a balanced plan is itself an obstacle in persuading NASCAR to move further toward a franchise system.
“When you support the sport and help build the sport, you should have something for that,” says Jimmie Johnson, the Cup champion of the past two seasons.
“We’ve all talked about franchising our sport, and I’m sure it will never happen, but this (stability for the top 35 in owner points) is the only thing that these owners have that they can count on that they can sell to their sponsor.”
The current system is a compromise in itself, of course. The official NASCAR position is that it provides a balance between the extremes of cutthroat competition and docile stability.